SOUTHERN UNION COMPANY
                             504 LAVACA, SUITE 800
                              AUSTIN, TEXAS  78701
                                 (512) 477-5852




May 15, 2001



VIA EDGAR

Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D. C.  20549

RE:      Quarterly Report on Form 10-Q
         for the period ended March 31, 2001
         of Southern Union Company;
         Commission File No. 1-6407

Ladies and Gentlemen:

Enclosed for filing on behalf of Southern Union Company (the "Company") is the
Company's quarterly report on Form 10-Q, complete with exhibits, for the period
ended March 31, 2001.

Very truly yours,


DAVID J. KVAPIL
--------------------------------
David J. Kvapil
Senior Vice President and Corporate Controller

DJK/lg

Enclosures


<PAGE>



================================================================================
               UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                           WASHINGTON, D. C.  20549


                                   FORM 10-Q

                          For the quarterly period ended

                                 March 31, 2001



                            Commission File No. 1-6407


                              SOUTHERN UNION COMPANY
            (Exact name of registrant as specified in its charter)


                 Delaware                                     75-0571592
    (State or other jurisdiction of                        (I.R.S. Employer
     incorporation or organization)                       Identification No.)


    504 Lavaca Street, Eighth Floor                             78701
             Austin, Texas                                    (Zip Code)
(Address of principal executive offices)


     Registrant's telephone number, including area code:  (512)  477-5852


        Securities Registered Pursuant to Section 12(b) of the Act:


         Title of each class           Name of each exchange in which registered
         -------------------           -----------------------------------------
Common Stock, par value $1 per share            New York Stock Exchange



Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes  X  No
    ---    ------

The number of shares of the registrant's Common Stock outstanding on May 4, 2001
was 50,982,246.







================================================================================
<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES
                                   FORM 10-Q
                                March 31, 2001
                                    Index




PART I.  FINANCIAL INFORMATION                                           Page(s)
                                                                         -------

     Item 1.  Financial Statements

              Consolidated statements of operations - three, nine
                  and twelve months ended March 31, 2001 and 2000         2-4

              Consolidated balance sheet - March 31, 2001 and 2000
                  and June 30, 2000                                       5-6

              Consolidated statement of stockholders' equity -
                  nine months ended March 31, 2001 and twelve
                  months ended June 30, 2000                               7

              Consolidated statements of cash flows - three, nine
                  and twelve months ended March 31, 2001 and 2000         8-10

              Notes to consolidated financial statements                 11-21

     Item 2.  Management's Discussion and Analysis of Financial
              Condition and Results of Operations                        22-30

     Item 3.  Quantitative and Qualitative Disclosures about
              Market Risk                                                 30

PART II.  OTHER INFORMATION

     Item 1.  Legal Proceedings

              (See "COMMITMENTS AND CONTINGENCIES" under Notes
                   to Consolidated Financial Statements)                 18-21

     Item 5.  Other Information

              (See "OTHER" under Management's Discussion and
                   Analysis of Financial Condition and Results
                   of Operations)                                         30

     Item 6.  Exhibits and Reports on Form 8-K -- None










--------------------------------------------------------------------------------

                                      1

<PAGE>



                 SOUTHERN UNION COMPANY AND SUBSIDIARIES

                  CONSOLIDATED STATEMENT OF OPERATIONS



                                                    Three Months Ended March 31,
                                                        2001            2000
                                                    ------------    ------------
                                                   (thousands of dollars, except
                                                   shares and per share amounts)


Operating revenues .............................    $   914,653    $   344,789
Cost of gas and other energy ...................        685,404        217,793
                                                    -----------    -----------
     Operating margin ..........................        229,249        126,996
 Revenue-related taxes .........................         33,664         14,195
                                                    -----------    -----------
     Net operating margin ......................        195,585        112,801

Operating expenses:
     Operating, maintenance and general ........         69,766         39,189
     Depreciation and amortization .............         24,615         15,191
     Taxes, other than on income and revenues ..          8,480          5,520
                                                    -----------    -----------
         Total operating expenses ..............        102,861         59,900
                                                    -----------    -----------
         Net operating revenues ................         92,724         52,901
                                                    -----------    -----------

Other income (expenses):
     Interest ..................................        (29,163)        (14,940)
     Dividends on preferred securities of
         subsidiary trust.......................         (2,370)         (2,370)
     Other, net ................................         14,364          (1,034)
                                                    -----------    ------------
         Total other expenses, net .............        (17,169)        (18,344)
                                                    -----------    ------------

         Earnings before income taxes ..........         75,555          34,557

Federal and state income taxes .................         34,749          15,042
                                                    -----------    ------------

Net earnings available for common stock ........    $    40,806    $     19,515
                                                    ===========    ============

Net earnings per share:
     Basic .....................................    $       .82    $        .40
                                                    ===========    ============
     Diluted ...................................    $       .77    $        .38
                                                    ===========    ============

Weighted average shares outstanding:
     Basic .....................................     49,933,878      49,265,244
                                                    ===========    ============
     Diluted ...................................     52,862,818      51,281,397
                                                    ===========    ============












                           See accompanying notes.

--------------------------------------------------------------------------------

                                    2

<PAGE>



                   SOUTHERN UNION COMPANY AND SUBSIDIARIES

                    CONSOLIDATED STATEMENT OF OPERATIONS



                                                     Nine Months Ended March 31,
                                                         2001           2000
                                                     ------------   ------------
                                                   (thousands of dollars, except
                                                   shares and per share amounts)

Operating revenues.............................      $ 1,664,461    $   669,170
Cost of gas and other energy...................        1,203,862        402,182
                                                     -----------    -----------
     Operating margin..........................          460,599        266,988
Revenue-related taxes..........................           62,597         29,416
                                                     -----------    -----------
     Net operating margin......................          398,002        237,572

Operating expenses:
     Operating, maintenance and general........          168,935         98,647
     Depreciation and amortization.............           64,319         39,539
     Taxes, other than on income and revenues..           21,290         13,779
                                                     -----------    -----------
          Total operating expenses.............          254,544        151,965
                                                     -----------    -----------
          Net operating revenues...............          143,458         85,607
                                                     -----------    -----------

Other income (expenses):
     Interest..................................          (75,772)       (36,603)
     Dividends on preferred securities of
          subsidiary trust.....................           (7,110)        (7,110)
     Other, net................................           23,761         (5,527)
                                                     -----------    -----------
          Total other expenses, net............          (59,121)       (49,240)
                                                     -----------    -----------

          Earnings before income taxes and
               cumulative effect of change
               in accounting principle.........           84,337         36,367

Federal and state income taxes.................           38,789         15,820
                                                     -----------    -----------

Earnings before cumulative effect of change
     in accounting principle...................           45,548         20,547

Cumulative effect of change in accounting
     principle, net of tax.....................              602          --
                                                     -----------    -----------

Net earnings available for common stock........       $   46,150    $    20,547
                                                     ===========    ===========

Net earnings per share:
     Basic
          Before cumulative effect of change
              in accounting principle...........      $      .92    $       .49
          Cumulative effect of change in
              accounting principle, net of tax..             .01          --
                                                     -----------    -----------
                                                     $       .93    $       .49
                                                     ===========    ===========

     Diluted
          Before cumulative effect of change
              in accounting principle...........      $      .87    $       .47
          Cumulative effect of change in
              accounting principle, net of tax..             .01          --
                                                     -----------    -----------
                                                     $       .88    $       .47
                                                     ===========    ===========

Weighted average shares outstanding:
     Basic......................................      49,479,253     41,690,742
                                                     ===========    ===========
     Diluted....................................      52,191,499     43,636,397
                                                     ===========    ===========

                              See accompanying notes.

--------------------------------------------------------------------------------

                                       3

<PAGE>



                   SOUTHERN UNION COMPANY AND SUBSIDIARIES

                     CONSOLIDATED STATEMENT OF OPERATIONS



                                                   Twelve Months Ended March 31,
                                                       2001             2000
                                                   ------------     ------------
                                                   (thousands of dollars, except
                                                   shares and per share amounts)

Operating revenues............................     $ 1,826,995      $   770,858
Cost of gas and other energy..................       1,299,378          452,113
                                                   -----------      -----------
     Operating margin.........................         527,617          318,745
Revenue-related taxes.........................          68,077           34,281
                                                   -----------      -----------
     Net operating margin.....................         459,540          284,464

Operating expenses:
     Operating, maintenance and general.......         206,875          126,563
     Depreciation and amortization............          79,920           49,946
     Taxes, other than on income and revenues.          24,780           17,506
                                                   -----------      -----------
          Total operating expenses............         311,575          194,015
                                                   -----------      -----------
          Net operating revenues..............         147,965           90,449
                                                   -----------      -----------

Other income (expenses):
     Interest.................................         (90,661)         (45,759)
     Dividends on preferred securities of
          subsidiary trust....................          (9,480)          (9,480)
     Other, net...............................          19,580           (7,651)
                                                   -----------      -----------
          Total other expenses, net...........         (80,561)         (62,890)
                                                   -----------      -----------

          Earnings before income taxes and
               cumulative effect of change
               in accounting principle........          67,404           27,559

Federal and state income taxes................          32,558           12,516
                                                   -----------      -----------

Earnings before cumulative effect of change
     in accounting principle..................          34,846           15,043

Cumulative effect of change in accounting
     principle, net of tax....................             602             --
                                                   -----------      -----------

Net earnings available for common stock.......     $    35,448      $    15,043
                                                   ===========      ===========

Net earnings per share:
     Basic
          Before cumulative effect of change
               in accounting principle........     $       .71      $       .38
          Cumulative effect of change in
               accounting principle, net
               of tax.........................             .01             --
                                                   -----------      -----------
                                                   $       .72      $       .38
                                                   ===========      ===========

     Diluted
          Before cumulative effect of change
               in accounting principle........     $       .67      $       .36
          Cumulative effect of change in
               accounting principle, net
               of tax.........................             .01             --
                                                   -----------      -----------
                                                   $       .68      $       .36
                                                   ===========      ===========

Weighted average shares outstanding:
     Basic....................................      49,245,493       39,582,434
                                                   ===========      ===========
     Diluted..................................      51,838,262       41,320,632
                                                   ===========      ===========

                             See accompanying notes.

--------------------------------------------------------------------------------

                                       4

<PAGE>



                    SOUTHERN UNION COMPANY AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEET

                                    ASSETS



                                              March 31,               June 30,
                                     --------------------------
                                         2001          2000             2000
                                     ------------  ------------     ------------
                                              (thousands of dollars)

Property, plant and equipment:
     Plant in service...........     $ 2,178,163   $ 1,545,099      $ 1,580,077
     Construction work in
          progress..............          27,158        37,306           30,192
                                     -----------   -----------      -----------
                                       2,205,321     1,582,405        1,610,269
     Less accumulated deprecia-
          tion and amortization.        (758,717)     (497,227)        (509,947)
                                     -----------   -----------      -----------
                                       1,446,604     1,085,178        1,100,322
     Additional purchase cost
          assigned to utility
          plant, net............         733,921       378,085          386,839
                                     -----------   -----------      -----------

     Net property, plant and
          equipment.............       2,180,525     1,463,263        1,487,161
                                     -----------   -----------      -----------



Current assets:
     Cash and cash equivalents..           8,166        52,327           27,829
     Accounts receivable,
          billed and unbilled,
          net...................         462,279       129,650           74,959
     Inventories, principally
          at average cost.......          41,639        26,698           60,259
     Deferred gas purchase
          costs.................          99,415          --               --
     Investment securities
          available for sale....          92,241          --            187,817
     Prepayments and other......          14,730         7,854              877
                                     -----------   -----------      -----------

          Total current assets..         718,470       216,529          351,741
                                     -----------   -----------      -----------

Deferred charges................         212,711       139,313          145,006

Investment securities, at cost..          20,081        15,587           10,489

Real estate.....................           2,552         9,438            9,461

Other...........................          36,552        20,841           17,602
                                     -----------   -----------      -----------









     Total......................     $ 3,170,891   $ 1,864,971      $ 2,021,460
                                     ===========   ===========      ===========





                              See accompanying notes.

--------------------------------------------------------------------------------

                                         5

<PAGE>



                   SOUTHERN UNION COMPANY AND SUBSIDIARIES

                    CONSOLIDATED BALANCE SHEET (Continued)

                    STOCKHOLDERS' EQUITY AND LIABILITIES



                                              March 31,               June 30,
                                     --------------------------
                                         2001          2000             2000
                                     ------------  ------------     ------------
                                              (thousands of dollars)

Common stockholders' equity:
     Common stock, $1 par
          value; authorized
          200,000,000 shares;
          issued 51,991,624
          shares.................    $    51,992   $    48,135      $    50,521
     Premium on capital stock....        626,253       592,274          599,835
     Less treasury stock,
          1,010,077 shares at
          cost...................        (15,869)      (14,313)         (15,554)
     Less common stock held in
          trust..................        (17,547)      (15,254)         (15,330)
     Deferred compensation plans.          7,499           763              808
     Accumulated other compre-
          hensive income (loss)..         54,940          (436)         115,175
     Retained earnings...........         46,150        20,547             --
                                     -----------   -----------      -----------

     Total common stockholders'
          equity.................        753,418       631,716          735,455

Company-obligated mandatorily
     redeemable preferred securi-
     ties of subsidiary trust
     holding solely subordinated
     notes of Southern Union.....        100,000       100,000          100,000

Long-term debt and capital
    lease obligation.............      1,368,817       734,320          733,774
                                     -----------   -----------      -----------

     Total capitalization........      2,222,235     1,466,036        1,569,229

Current liabilities:
     Long-term debt and capital
          lease obligation due
          within one year........          5,219         2,169            2,193
     Notes payable...............        211,600             3                3
     Accounts payable............        227,917        64,660           77,488
     Federal, state and local
          taxes..................         66,069        22,526            7,359
     Accrued interest............         18,544        16,067           15,922
     Accrued dividends on
          preferred securities
          of subsidiary trust....          2,370          --               --
     Customer deposits...........         20,584        17,805           17,255
     Deferred gas purchase costs.           --          21,674           11,708
     Other.......................         68,830        16,052           30,778
                                     -----------   -----------      -----------

          Total current
               liabilities.......        621,133       160,956          162,706
                                     -----------   -----------      -----------

Deferred credits and other.......        131,726       111,818          106,015
Accumulated deferred income
     taxes.......................        195,797       126,161          183,510
Commitments and contingencies....           --            --               --
                                     -----------   -----------      -----------


     Total.......................    $ 3,170,891   $ 1,864,971      $ 2,021,460
                                     ===========   ===========      ===========



                             See accompanying notes.

--------------------------------------------------------------------------------

                                       6

<PAGE>



                   SOUTHERN UNION COMPANY AND SUBSIDIARIES

                CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY



                                                  Accumu-
                                                   lated
             Common  Premium    Trea-    Common    Other
             Stock,     on      sury     Stock     Compre-  Retained
             $1 Par  Capital   Stock,    Held in   hensive  Earnings/
              Value   Stock    at Cost    Trust    Income   (Deficit)   Total
             ------- -------- --------- --------- --------- --------- ---------
                                  (thousands of dollars)


Balance
 July 1,
 1999......  $31,240 $276,610 $   (794) $ (4,927) $   (436) $ --      $ 301,693

 Comprehen-
  sive
  income:
   Net
    earn-
    ings...     --       --       --        --        --      9,845       9,845
   Unrea-
    lized
    gain
    in in-
    vest-
    ment
    secur-
    ities,
    net of
    tax....     --       --       --        --     115,175    --        115,175
   Minimum
    pension
    liabil-
    ity ad-
    just-
    ment;
    net of
    tax....     --       --       --        --         436    --            436
                                                                      ---------
   Compre-
    hensive
    income.                                                             125,456
                                                                      ---------
 Purchase
  of common
  stock
  held in
  trust..       --       --       --      (9,864)     --      --         (9,864)
 5% stock
  dividend.    2,359    7,452     --        --        --     (9,845)        (34)
 Purchase
  of trea-
  sury
  stock....     --       --    (14,425)     --        --      --        (14,425)
 Issuance
  of stock
  for ac-
  quisi-
  tion.....   16,714  315,235     --        --        --      --        331,949
 Exercise
  of stock
  options..      208      538     (335)      269      --      --            680
             ------- -------- --------  --------  --------  -------   ---------
Balance
 June 30,
 2000......   50,521  599,835  (15,554)  (14,522)  115,175    --        735,455

 Comprehen-
  sive in-
  come:
   Net
    earn-
    ings...     --       --       --        --        --      46,150     46,150
   Unrea-
    lized
    loss
    in in-
    vest-
    ment
    secur-
    ities,
    net of
    tax
    bene-
    fit....     --       --       --        --     (58,605)   --        (58,605)
   Cumula-
    tive
    effect
    of
    change
    in ac-
    count-
    ing
    prin-
    ciple...    --       --       --        --         826    --            826
   Unrea-
    lized
    loss on
    hedging
    activi-
    ties....    --       --       --        --      (2,456)   --         (2,456)
                                                                      ---------
  Comprehen-
   sive in-
   come
   (loss)...                                                            (14,085)
                                                                      ---------
 Payment on
  note re-
  ceivable..    --        290     --        --        --      --            290
 Purchase
  of common
  stock held
  in trust.     --       --       --      (2,360)     --      --         (2,360)
 Benefit
  plan re-
  struc-
  turing...     --       --       --       6,560      --      --          6,560
 Issuance
  of stock
  for ac-
  quisi-
  tion.....    1,371   25,505     --        --        --      --         26,876
 Exercise
  of stock
  options..      100      623     (315)      274      --      --            682
             ------- -------- --------  --------  --------  --------  ---------
Balance
 March 31,
 2001......  $51,992 $626,253 $(15,869) $(10,048) $ 54,940  $ 46,150  $ 753,418
             ======= ======== ========= ========= ========  ========  =========












                              See accompanying notes.

--------------------------------------------------------------------------------

                                        7

<PAGE>



                 SOUTHERN UNION COMPANY AND SUBSIDIARIES

                  CONSOLIDATED STATEMENT OF CASH FLOWS



                                                    Three Months Ended March 31,
                                                        2001            2000
                                                    ------------    ------------
                                                       (thousands of dollars)

Cash flows from (used in) operating activities:
     Net earnings................................   $    40,806     $    19,515
     Adjustments to reconcile net earnings to
          net cash flows (used in) from
          operating activities:
              Depreciation and amortization......        24,615          15,191
              Deferred income taxes..............         4,398           3,585
              Non-cash compensation expense......        (2,216)           --
              Provision for bad debts............        13,398           2,011
              Financial derivative trading gains.        (3,360)           --
              Gain on sale of investment
                  securities.....................       (12,494)           --
              Deferred interest expense..........          (406)            108
              Other..............................           865             428
              Changes in assets and liabilities,
                   net of acquisitions:
                       Accounts receivable,
                           billed and unbilled..       (65,258)          17,577
                       Accounts payable.........       (54,194)         (10,635)
                       Taxes and other
                           liabilities..........        37,932            9,807
                       Customer deposits........          (368)             (29)
                       Deferred gas purchase
                            costs...............       (67,305)           2,382
                       Inventories..............        76,904           43,706
                       Other....................        (4,411)         (10,099)
                                                    ----------      -----------
              Net cash flows (used in) from
                   operating activities.........       (11,094)          93,547
                                                    ----------      -----------
Cash flows used in investing activities:
     Additions to property, plant and equipment.       (25,469)         (26,608)
     Acquisitions of operations, net of cash
         received...............................        (1,646)          (2,252)
     Proceeds from sale of subsidiary...........          --             12,150
     Purchase of investment securities..........          --             (2,961)
     Increase in customer advances..............           806              608
     Deferred charges and credits...............       (12,105)           1,667
     Proceeds from sale of investment
         securities.............................        15,405             --
     Other......................................         4,691            1,538
                                                    ----------      -----------
          Net cash flows used in investing
              activities........................       (18,318)         (15,858)
                                                    ----------      -----------
Cash flows from (used in) financing activities:
     Repayment of debt and capital lease
         obligation.............................        (6,898)            (361)
     Net borrowings (payments) under revolving
         credit facility........................        36,600          (12,900)
     Purchase of treasury stock.................          --            (12,193)
     Other......................................            36               92
                                                    ----------      -----------
          Net cash flows from (used in)
              financing activities..............        29,738          (25,362)
                                                    ----------      -----------
Change in cash and cash equivalents.............           326           52,327
Cash and cash equivalents at beginning of
     period.....................................         7,840             --
                                                    ----------      -----------
Cash and cash equivalents at end of period......    $    8,166      $    52,327
                                                    ==========      ===========

Supplemental disclosures of cash flow
    information:
         Cash paid during the period for:
             Interest...........................    $   30,670      $    17,295
                                                    ==========      ===========
             Income taxes.......................    $    1,000      $     1,711
                                                    ==========      ===========





                             See accompanying notes.

--------------------------------------------------------------------------------

                                       8

<PAGE>



                   SOUTHERN UNION COMPANY AND SUBSIDIARIES

                    CONSOLIDATED STATEMENT OF CASH FLOWS



                                                     Nine Months Ended March 31,
                                                         2001           2000
                                                     ------------   ------------
                                                       (thousands of dollars)
Cash flows (used in) from operating activities:
     Net earnings.................................   $    46,150    $    20,547
     Adjustments to reconcile net earnings to net
          cash flows (used in) from operating
          activities:
              Depreciation and amortization.......        64,319         39,539
              Deferred income taxes...............        (1,562)         3,355
              Non-cash compensation expense.......           239           --
              Provision for bad debts.............        19,345          1,665
              Financial derivative trading losses.         5,684           --
              Gain on sale of investment
                   securities.....................       (21,363)          --
              Gain on sale of real estate.........       (13,532)          --
              Deferred interest expense...........        (1,064)           187
              Cumulative effect of change in
                   accounting principle...........          (602)          --
              Other...............................         2,560          1,225
              Changes in assets and liabilities,
                   net of acquisitions:
                       Accounts receivable,
                            billed and unbilled...      (359,181)       (55,167)
                       Accounts payable...........       110,254         10,235
                       Taxes and other
                            liabilities...........        56,410          9,719
                       Customer deposits..........          (852)           123
                       Deferred gas purchase
                            costs.................      (102,120)        (5,149)
                       Inventories................        33,316         33,652
                       Other......................       (16,015)       (10,090)
                                                     -----------    -----------
              Net cash flows (used in) from
                  operating activities............      (178,014)        49,841
                                                     -----------    -----------
Cash flows used in investing activities:
     Additions to property, plant and equipment...       (87,172)       (69,430)
     Acquisition of operations, net of cash
          received................................      (406,949)       (38,083)
     Proceeds from sale of subsidiary.............          --           12,150
     Purchase of investment securities............       (12,495)       (15,008)
     Notes receivable.............................           290         (4,000)
     Increase (decrease) in customer advances.....           790          1,442
     Deferred charges and credits.................        (3,630)          (241)
     Proceeds from sale of investment securities..        26,777           --
     Proceeds from sale of real estate, net of
          closing costs...........................        20,638           --
     Other........................................         4,116          1,959
                                                     -----------    -----------
          Net cash flows used in investing
               activities.........................      (457,635)      (111,211)
                                                     -----------    -----------
Cash flows from financing activities:
     Issuance of long-term debt...................       535,000        300,000
     Issuance cost of debt........................        (2,538)        (6,643)
     Repayment of debt and capital lease
          obligation..............................       (14,607)      (138,269)
     Premium on early extinguishment of
          acquired debt...........................          --             (745)
     Net borrowings (payments) under revolving
          credit facility.........................       211,597        (21,000)
     Purchase of treasury stock...................          --          (13,519)
     Change in cash overdrafts....................          --           (6,655)
     Payment of merger debt assumed...............      (114,171)          --
     Other........................................           705            528
                                                     -----------    -----------
          Net cash flows from financing
               activities.........................       615,986        113,697
                                                     -----------    -----------
Change in cash and cash equivalents...............       (19,663)        52,327
Cash and cash equivalents at beginning of period..        27,829           --
                                                     -----------    -----------
Cash and cash equivalents at end of period........   $     8,166    $    52,327
                                                     ===========    ===========

Supplemental disclosures of cash flow information:
     Cash paid during the period for:
          Interest................................   $    78,092    $    40,512
                                                     ===========    ===========
          Income taxes............................   $     1,052    $     1,711
                                                     ===========    ===========

                               See accompanying notes.

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                                         9

<PAGE>



                    SOUTHERN UNION COMPANY AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF CASH FLOWS


                                                   Twelve Months Ended March 31,
                                                       2001             2000
                                                   ------------     ------------
                                                      (thousands of dollars)

Cash flows (used in) from operating activities:
     Net earnings...............................   $    35,448      $    15,043
     Adjustments to reconcile net earnings to
          net cash flows from (used in)
          operating activities:
              Depreciation and amortization.....        79,920           49,946
              Deferred income taxes.............        (4,482)          11,349
              Provision for bad debts...........        22,678            2,573
              Financial derivative trading
                  losses........................         7,920             --
              Deferred interest expense.........        (1,563)             289
              Cumulative effect of change in
                  accounting principle..........          (602)            --
              Gain on sale of investment
                  securities....................       (21,363)            --
              Gain on sale of real estate.......       (13,532)            --
              Other.............................         3,138            1,160
              Changes in assets and liabili-
                  ties, net of acquisitions:
                       Accounts receivable,
                           billed and unbilled..      (307,844)          (5,216)
                       Accounts payable.........       122,621           (7,905)
                       Taxes and other
                           liabilities..........        41,055            1,490
                       Customer deposits........        (4,382)            (546)
                       Deferred gas purchase
                           costs................      (112,085)           2,839
                       Inventories..............          (245)          29,994
                       Other....................        (4,015)         (10,956)
                                                   -----------      -----------
              Net cash flows (used in) from
                  operating activities..........     (157,333)           90,060
                                                   -----------      -----------
Cash flows used in investing activities:
     Additions to property, plant and equipment.      (118,188)         (92,179)
     Acquisition of operations, net of cash
          received..............................      (407,232)         (38,083)
     Proceeds from sale of subsidiary...........          --             12,150
     Purchase of investment securities..........       (18,488)         (17,008)
     Note receivable............................           290           (4,000)
     Customer advances..........................           698            1,971
     Deferred charges and credits...............        (7,046)          (4,398)
     Proceeds from sale of investment
          securities............................        26,777             --
     Proceeds from sale of real estate, net of
          closing costs.........................        20,638             --
     Other......................................         1,604            1,326
                                                   -----------      -----------
          Net cash flows used in investing
               activities.......................      (500,947)        (140,221)
                                                   -----------      -----------
Cash flows from financing activities:
     Issuance of long-term debt.................       535,000          300,000
     Issuance cost of debt......................        (3,187)          (6,643)
     Repayment of debt and capital lease
          obligation............................       (15,129)        (157,590)
     Premium on early extinguishment of
          acquired debt ........................            26             (745)
     Net borrowings (payments) under revolving
          credit facility.......................       211,597          (18,600)
     Purchase of treasury stock.................          (906)         (13,519)
     Change in cash overdrafts..................          --               (603)
     Payment of merger debt assumed.............      (114,171)            --
     Other......................................           889              188
                                                   -----------      -----------
          Net cash flows from financing
               activities.......................       614,119          102,488
                                                   -----------      -----------
Change in cash and cash equivalents.............       (44,161)          52,327
Cash and cash equivalents at beginning of
     period.....................................        52,327             --
                                                   -----------      -----------
Cash and cash equivalents at end of period......   $     8,166      $    52,327
                                                   ===========      ===========

Supplemental disclosures of cash flow
     information:
          Cash paid during the period for:
               Interest.........................   $    95,315      $    52,117
                                                   ===========      ===========
               Income taxes.....................   $     3,652      $     3,617
                                                   ===========      ===========


                             See accompanying notes.

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                                       10

<PAGE>



                    SOUTHERN UNION COMPANY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



FINANCIAL STATEMENTS

These interim financial statements should be read in conjunction with the
financial statements and notes thereto contained in Southern Union Company's
(Southern Union and, together with its wholly-owned subsidiaries, the Company)
Annual Report on Form 10-K/A for the fiscal year ended June 30, 2000. Certain
prior period amounts have been reclassified to conform with the current period
presentation.

The interim financial statements are unaudited but, in the opinion of
management, reflect all adjustments (including both normal recurring as well as
any non-recurring) necessary for a fair presentation of the results of
operations for such periods. Because of the seasonal nature of the Company's
operations, the results of operations and cash flows for any interim period are
not necessarily indicative of results for the full year. As further described
below, the Com pany acquired Providence Energy Corporation and Fall River Gas
Company on September 28, 2000, Valley Resources, Inc. on September 20, 2000 and
Pennsylvania Enterprises, Inc. on November 4, 1999. Accordingly, the operating
activities of the acquired operations are consolidated with the Company
beginning on the respective acquisition dates. Thus, the results of operations
of the Company for the periods subsequent to the acquisitions are not comparable
to those periods prior to the acquisitions nor are the fiscal 2001 results of
operations comparable with prior periods.

ACQUISITION ACTIVITIES

On September 28, 2000, Southern Union completed the acquisition of Providence
Energy Corporation (ProvEnergy) for approximately $270,000,000 in cash plus the
assumption of approximately $90,000,000 in long-term debt. The ProvEnergy
natural gas distribution operations are Providence Gas and North Attleboro Gas,
which collectively serve approximately 176,000 natural gas customers. Providence
Gas serves natural gas customers in Providence and Newport, Rhode Island, and 23
other cities and towns in Rhode Island. North Attleboro Gas serves customers in
North Attleboro and Plainville, Massachusetts, towns adjacent to the
northeastern Rhode Island border. Sub sidiaries of the Company acquired in the
ProvEnergy merger include ProvEnergy Oil Enterprises, Inc. ("ProvEnergy Oil"),
and ProvEnergy Power Company, LLC. ProvEnergy Oil operates a fuel oil
distribution business through its subsidiary, ProvEnergy Fuels, Inc. (ProvEnergy
Fuels). ProvEnergy Fuels serves over 15,000 residential and com mercial
customers in Rhode Island and Massachusetts. ProvEnergy Power Company owns 50%
of Capital Center Energy Company, LLC., a joint venture formed between
ProvEnergy and ERI Services, Inc. to provide retail power.

On September 28, 2000, Southern Union completed the acquisition of Fall River
Gas Company (Fall River Gas) for approximately 1,400,000 shares of Southern
Union common stock and approximately $27,000,000 in cash plus assumption of
approximately $20,000,000 in long-term debt. Fall River Gas serves approximately
49,000 customers in the city of Fall River and the towns of Somerset, Swansea
and Westport, all located in southeastern Massachusetts. Also acquired in the
Fall River Gas merger was Fall River Gas Appliance Company, Inc., which rents
water heaters and conversion burners (primarily for residential use) in Fall
River Gas' service area.

On September 20, 2000, Southern Union completed the acquisition of Valley
Resources, Inc. (Valley Resources) for approximately $125,000,000 in cash plus
the assumption of approximately $30,000,000 in long-term debt. Valley Resources
natural gas distribution operations are Valley Gas Company and Bristol and
Warren Gas Company, which collectively serve approximately 66,000 natural gas
customers. Valley Resources' three non-utility subsidiaries acquired in the
merger rent and sell appliances, offer service contract programs, sell liquid
propane in Rhode Island and nearby Massachusetts, and distribute as a wholesaler
franchised lines to plumbing and heating contractors. Also, acquired in the
acquisition was Valley Resources' 90% interest in Alternate Energy Corporation,
which sells, installs and designs natural gas conversion systems and facilities,
is an authorized representative of the ONSI Corporation fuel cell, holds patents
for a natural gas/diesel co-firing system and for a device to control the flow
of fuel on dual-fuel equipment.


--------------------------------------------------------------------------------

                                   11

<PAGE>



                    SOUTHERN UNION COMPANY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



The Company funded the cash portion of the above described acquisitions and any
related refinancings of assumed debt with a bank note (the Term Note). See Debt
and Capital Lease.

The assets of ProvEnergy, Fall River Gas and Valley Resources (hereafter
referred to as the Company's "New England Operations") have been included in the
consolidated balance sheet of the Company at March 31, 2001 and the results of
operations from the New England Operations have been included in the statement
of consolidated operations since their respective acquisition dates. The New
England Operations' primary business is the distribution of natural gas through
its public utility companies (collectively referred to as the "New England
Division"). The acquisitions were accounted for using the purchase method. The
additional purchase cost assigned to utility plant of approximately $360,000,000
reflects the excess of the purchase price over the historical book carrying
value of the utility plant. Amortization of the additional purchase cost
assigned to utility plant is provided on a straight-line basis over forty years.
The final allocation of the purchase price of the New England Operations
acquisition is expected to be completed in the fourth quarter of fiscal year
2001. The Company plans to sell or dispose of certain non-core businesses
acquired in the New England Operations.

Prior to the consummation of the acquisition of the New England Operations, the
Company purchased shares of Providence Energy Corporation, Fall River Gas
Company and Valley Resources, Inc. common stock for $2,882,000. As all necessary
approvals for the merger had not been obtained when these shares were purchased,
these purchases were treated as investment securities prior to closing the
mergers.

On November 4, 1999, the Company acquired Pennsylvania Enterprises, Inc.
(hereafter referred to as the "Pennsylvania Operations") in a transaction valued
at approximately $500,000,000, including assumption of long- term debt of
approximately $115,000,000. The Company issued approximately 16,700,000 shares
(before adjust ment for any subsequent stock dividend) of common stock and paid
approximately $36,000,000 in cash to complete the transaction. The Company
funded the cash portion of the acquisition of the Pennsylvania Operations and
related refinancings with the sale of $300,000,000 of 8.25% Senior Notes due
2029 completed on November 3, 1999 (8.25% Senior Notes). See Debt and Capital
Lease.

The Pennsylvania Operations are headquartered in Wilkes-Barre, Pennsylvania with
natural gas distribution being its primary business. The principal operating
division of the Pennsylvania Operations is the PG Energy division of the Company
which serves more than 156,000 gas customers in northeastern and central
Pennsylvania. Subsidiaries of the Company included in the Pennsylvania
Operations merger included PG Energy Services Inc., (Energy Services), Keystone
Pipeline Services, Inc. (Keystone, a wholly-owned subsidiary of PG Energy
Services Inc.), PEI Power Corporation, and Theta Land Corporation. Through
Energy Services the Company markets a diversified range of energy-related
products and services under the name of PG Energy PowerPlus and supplies propane
under the name of PG Energy Propane. Keystone provides pipeline and fiber optic
cable construction, installation, mainte nance, and rehabilitation services. PEI
Power Corporation operates a cogeneration plant that generates steam and
electricity for resale. Theta Land Corporation, which owned and provided land
management and development services for more than 44,000 acres of land, was sold
for $12,150,000 in January 2000. No gain or loss was recognized on this
transaction. The Company plans to sell or dispose of both Keystone and the
propane operations of Energy Services, which are not material to the Company.
The Company has not yet sold these operations and there can be no assurance that
a sale on terms satisfactory to the Company will be completed. A letter of
intent has been entered into for certain of these operations with the sale
expected to be completed during the fourth quarter of fiscal year 2001.

The assets of the Pennsylvania Operations are included in the consolidated
balance sheet of the Company at March 31, 2001 and the results of operations
from the Pennsylvania Operations have been included in the statement of
consolidated operations since November 4, 1999. The acquisition was accounted
for using the purchase method. The additional purchase cost assigned to utility
plant of approximately $261,000,000 reflects the excess of the

--------------------------------------------------------------------------------

                                     12

<PAGE>



                  SOUTHERN UNION COMPANY AND SUBSIDIARIES

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



purchase price over the historical book carrying value of the utility plant.
Amortization of the additional purchase cost assigned to utility plant is
provided on a straight-line basis over forty years.

Prior to the consummation of the acquisition of the Pennsylvania Operations, the
Company purchased 358,500 shares of Pennsylvania Enterprises, Inc. stock for
$11,887,000 during both the first and second quarters of the Company's fiscal
year 2000. As all necessary approvals for the merger had not been obtained,
these purchases were treated as investment securities.

Pro Forma Financial Information

The following unaudited pro forma financial information for the nine-month
periods ended March 31, 2001 and 2000 is presented as though the following
events had occurred at the beginning of the earliest period presented: (i)
acquisition of the New England Operations and the Pennsylvania Operations; (ii)
the issuance of the Term Note and the sale of the 8.25% Senior Notes; and (iii)
the refinancing of certain short-term and long-term debt at the time of the
acquisitions. The pro forma financial information is not necessarily indicative
of the results which would have actually been obtained had the acquisition of
the New England Operations and Pennsylvania Operations, the issuance of the Term
Note, the sale of senior notes or the refinancings been completed as of the
assumed date for the periods presented or which may be obtained in the future.

                                                     Nine Months Ended March 31,
                                                         2001          2000
                                                     ------------  -------------

Operating revenues.............................      $  1,708,121  $  1,013,239
Income (loss) before extraordinary item........            24,575        (2,339)
Net earnings (loss) available for common stock.            24,575        (2,339)
Net earnings (loss) per common stock:
     Basic.....................................               .49          (.05)
     Diluted...................................               .47          (.05)

EARNINGS PER SHARE

Average shares outstanding, which excludes treasury stock, for basic earnings
per share were 49,933,878 and 49,265,244 for the three-month period ended March
31, 2001 and 2000, respectively; 49,479,253 and 41,690,742 for the nine-month
period ended March 31, 2001 and 2000, respectively; and 49,245,493 and
39,582,434 for the twelve-month period ended March 31, 2001 and 2000,
respectively. Diluted earnings per share includes average shares outstanding as
well as common stock equivalents from stock options and warrants. Common stock
equiva lents were 1,886,140 and 1,174,742 for the three-month period ended March
31, 2001 and 2000, respectively; 1,702,361 and 1,423,998 for the nine-month
period ended March 31, 2001 and 2000, respectively ;and 1,597,540 and 1,464,315
for the twelve-month period ended March 31, 2001 and 2000, respectively. At
March 31, 2001, 1,015,528 shares of common stock were held by various rabbi
trusts for certain of the Company's benefit plans and 185,947 shares were held
in a rabbi trust for certain employees who deferred receipt of Company shares
for stock options exercised.

INVESTMENT SECURITIES

At March 31, 2001, the Company held securities of Capstone Turbine Corporation
(Capstone). This investment is classified as "available for sale" under the
Statement of Financial Accounting Standards Board (FASB) Accounting for Certain
Investments in Debt and Equity Securities; accordingly, these securities are
stated at fair value, with unrealized gains and losses recorded as a separate
component of common stockholders' equity. Realized gains and losses on sales of
investments, as determined on a specific identification basis, are included in
the Consolidated Statement of Operations when realized. During both the second
and third quarters of the Company's fiscal year

--------------------------------------------------------------------------------

                                    13

<PAGE>



                    SOUTHERN UNION COMPANY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



2001, the Company sold securities in Capstone, realizing a pre-tax gain of
$8,869,000 and $12,494,000, respectively. As of March 31, 2001, the Company's
remaining investment in Capstone had a fair value of $92,241,000 and unrea lized
gain, net of tax, of $56,569,000. From April 1, 2001 to May 4, 2001, additional
securities were sold re sulting in pre-tax gains of $35,756,000. As of May 4,
2001, the fair value of the Company's remaining investment in Capstone was
$53,541,000. Subject to market conditions that are not detrimental to the
Company, and as oppor tunities arise following the completion of the applicable
lock-up periods to which it was subject, the Company expects to monetize its
investment. The Company intends to use the proceeds from such sales to reduce
outstanding debt.

All other securities owned by the Company are accounted for under the cost
method. The Company's other invest ments in securities consist of common and/or
preferred stock in non-public companies whose stock is not traded on a
securities exchange. Realized gains and losses on sales of these investments, as
determined on a specific identification basis, are included in the Consolidated
Statement of Operations when incurred, and dividends are recognized as income
when received.

REAL ESTATE

On December 15, 2000, the Company sold its Austin, Texas headquarters building,
Lavaca Plaza. The property, purchased by the Company in 1991, netted pre-tax
cash proceeds of $20,638,000, resulting in a pre-tax gain of approximately
$13,532,000.

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Accounting Policies of Derivatives and Hedging Activities The Company recognizes
derivatives on the consolidated balance sheet at their fair value. On the date
of the derivative contract, the Company designates the derivative as: (i) a
hedge of the fair value of a recognized asset or liability or of an unrecognized
firm commitment ("fair value" hedge); (ii) a hedge of a forecasted transaction
or of the variability of cash flows to be received or paid related to a
recognized asset or liability ("cash flow" hedge), or (iii) "held for trading"
("trading" instruments). Changes in the fair value of a derivative that
qualifies as a fair-value hedge, along with the gain or loss on the hedged asset
or liability that is attributable to the hedged risk (including gains or losses
on firm commitments), are recorded in earnings. Changes in the fair value of a
derivative that qualifies as a cash-flow hedge are recorded in other
comprehensive income, until earnings are affected by the variability of cash
flows. Lastly, changes in the fair value of derivative trading instruments are
reported in current-period earnings.

Adoption of Accounting Pronouncement The Company adopted Accounting for
Derivative Instruments and Hedging Activities on July 1, 2000. In accordance
with that Statement, the Company recorded a net-of-tax cumulative-effect gain of
$602,000 in earnings to recognize the fair value of the gas derivative contracts
at Energy Services that are not designated as hedges. The Company also recorded
$826,000 in accumulated other comprehensive income which recognizes the fair
value of two interest rate swap derivatives that were designated as cash flow
hedges.

Derivative Activities The Company manages certain business risks through the
limited use of derivative instru ments. Interest rate swaps are employed to
hedge the effect of changes in interest rates related to certain debt
instruments and commodity swaps and options to manage price risk associated with
certain energy contracts, primarily heating oil. The Company was previously
party to an interest rate swap designed to reduce exposure to changes in the
fair value of a fixed rate lease commitment. This interest rate swap, designated
as a fair value hedge, was terminated in October 2000 resulting in a pre-tax
gain of $182,000 which will be amortized into earnings through December 2004.
The Company also continues to be obligated under three interest rate swaps
created to hedge the exposure to potential volatility in interest payments on
variable rate debt. At March 31, 2001 the fair value of these interest rate
derivatives was a liability of $3,018,000 and is offset by a matching adjustment
to other comprehensive income.  For the three- and nine-month periods ended
March 31, 2001 net settlement payments of $362,000 and $97,000, respectively,
were made related to these derivatives and recorded to interest expense.

--------------------------------------------------------------------------------

                                    14

<PAGE>



                   SOUTHERN UNION COMPANY AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



The Company expects to reclassify as earnings during the next twelve months
$1,556,000 net-of-tax in derivative losses from accumulated other comprehensive
income as the settlement of swap payments occur. The maximum term over which the
Company is hedging exposures to the variability of cash flows is 31 months.

The Company was also previously committed under two gas derivative contracts
related to certain non-regulated operations acquired in conjunction with the
acquisition of the Pennsylvania Operations. These two contracts were not
designated as hedging instruments and therefore did not qualify to receive hedge
accounting treatment under the Statement. During the quarter ended December 31,
2000, these derivative contracts expired and the Company recognized a pre-tax
loss of $526,000 in recording the expiration of these derivative contracts. This
loss was offset by a pre-tax gain of $494,000 arising from the monthly settle-
ment of the two derivative contracts that expired in November 2000.

In conjunction with the acquisition of Providence Energy Corporation, the
Company also acquired ProvEnergy Oil, a distributor of fuel oil to retail and
commercial customers. ProvEnergy Oil offers certain retail customers price caps
for winter heating oil and purchases heating oil call options as a hedge against
price fluctuations on the related anticipated commodity purchases. As of
March 31, 2001, the Company owned options representing 294,000 gallons of fuel
oil at an average strike price of $.76 a gallon, and the fair value of the
hedging options was nil.  The maximum term over which the Company is hedging
exposures to the variability of cash flows for forecasted purchases of home
heating oil is ten months.

Trading Contracts The Company, through one of its non-regulated Pennsylvania
subsidiaries, is also a party to certain energy trading contracts for the
purchase and sale of energy commodities. These contracts are accounted for in
accordance with Emerging Issues Task Force Issue Accounting for Contracts
Involved in Energy Trading and Risk Management Activities which requires that
energy trading contracts be recorded at fair value as of each balance sheet date
with gains and losses included in earnings. During the third quarter ended
March 31, 2001, the Company received settlements of $340,000. At March 31, 2001
the trading asset was $12,000, which represents the fair market value of the
outstanding contracts.

In March 2001, the Company discovered unauthorized financial derivative energy
trading activity by a non-regulated, wholly-owned subsidiary. During March 2001
and April 2001, all unauthorized trading activity was closed resulting in a
cumulative cash expense of $191,000, net of taxes. As a result of the unautho-
rized financial derivative energy trading activity, open contracts of a non-
regulated, wholly- owned subsidiary were present at March 31, 2001 for: 10,000
MMBtu's of natural gas per day for the contract period of January 2001 to
December 2001 at a fixed price of $2.72 per MMBtu; 10,000 MMBtu's of natural gas
per day for the contract period of January 2002 to August 2002 at a fixed price
of $3.41 per MMBtu; and 10,000 MMBtu's of natural gas per day for the contract
period of May 2001 to December 2001 at a fixed price of $4.81 per MMBtu.  This
unauthorized financial derivative energy trading activity resulted in a non-cash
gain of $1,814,000, net of taxes, for the three-month period ended March 31,
2001 and non-cash losses of $3,069,000 and $4,277,000, net of taxes, for the
nine- and twelve-month periods ended March 31, 2001. These items are recorded in
other, net on the Consolidated Statement of Operations.  For the quarter ending
March 31, 2001, the Company recorded a liability of $7,921,000 representing the
fair market value of the contracts and a pre-tax non-cash gain of $3,360,000.



--------------------------------------------------------------------------------

                                  15

<PAGE>



                  SOUTHERN UNION COMPANY AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



PREFERRED SECURITIES OF SUBSIDIARY TRUST

On May 17, 1995, Southern Union Financing I (Subsidiary Trust), a consolidated
wholly-owned subsidiary of Southern Union, issued $100,000,000 of 9.48% Trust
Originated Preferred Securities (Preferred Securities). In connection with the
Subsidiary Trust's issuance of the Preferred Securities and the related purchase
by Southern Union of all of the Subsidiary Trust's common securities (Common
Securities), Southern Union issued to the Subsidiary Trust $103,092,800
principal amount of its 9.48% Subordinated Deferrable Interest Notes, due 2025
(Subordinated Notes). The sole assets of the Subsidiary Trust are the
Subordinated Notes. The interest and other payment dates on the Subordinated
Notes correspond to the distribution and other payment dates on the Preferred
Securities and the Common Securities. Under certain circumstances, the
Subordinated Notes may be distributed to holders of the Preferred Securities and
holders of the Common Securities in liquidation of the Subsidiary Trust. The
Subordinated Notes are redeemable at the option of the Company on or after May
17, 2000, at a redemption price of $25 per Subordinated Note plus accrued and
unpaid interest. The Preferred Securities and the Common Securities will be
redeemed on a pro rata basis to the same extent as the Subordinated Notes are
repaid, at $25 per Preferred Security and Common Security plus accumulated and
unpaid distributions. Southern Union's obligations under the Sub ordinated Notes
and related agreements, taken together, constitute a full and unconditional
guarantee by Southern Union of payments due on the Preferred Securities. As of
March 31, 2001 and 2000, 4,000,000 shares of Preferred Securities were
outstanding.

DEBT AND CAPITAL LEASE

                                                         March 31,    June 30,
                                                           2001         2000
                                                        -----------  -----------
                                                         (thousands of dollars)

7.60% Senior Notes due 2024.......................      $  364,515   $   364,515
8.25% Senior Notes due 2029.......................         300,000       300,000
8.375% First Mortgage Bonds, due 2002.............          30,000        30,000
5.62% First Mortgage Bonds, due 2003..............           4,800         --
10.25% First Mortgage Bonds, due 2008.............           2,182         --
6.82% First Mortgage Bonds, due 2018..............          15,000         --
9.34% First Mortgage Bonds, due 2019..............          15,000        15,000
9.63% First Mortgage Bonds, due 2020..............          10,000         --
9.44% First Mortgage Bonds, due 2020..............           6,500         --
8.09% First Mortgage Bonds, due 2022..............          12,500         --
8.46% First Mortgage Bonds, due 2022..............          12,500         --
7.50% First Mortgage Bonds, due 2025..............          15,000         --
7.99% First Mortgage Bonds, due 2026..............           7,000         --
7.24% First Mortgage Bonds, due 2027..............           6,000         --
6.50% First Mortgage Bonds, due 2029..............          14,428         --
7.70% Debentures, due 2022........................           6,825         --
Term Note, due 2002...............................         523,000         --
Capital lease and other...........................          28,786        26,452
                                                        ----------   -----------
Total debt and capital lease......................       1,374,036       735,967
    Less current portion..........................           5,219         2,193
                                                        ----------   -----------
Total long-term debt and capital lease............      $1,368,817   $   733,774
                                                        ==========   ===========

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                                     16

<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Senior Notes On November 3, 1999, the Company completed the sale of $300,000,000
of 8.25% Senior Notes (8.25% Notes) due 2029. The net proceeds from the sale of
these 8.25% Notes were used to: (i) fund the acquisition of Pennsylvania
Enterprises, Inc.; (ii) repay approximately $109,900,000 of borrowings under the
revolving credit facility, and (iii) repay approximately $136,000,000 of long-
and short-term debt assumed in the acquisition.

Assumed Debt In connection with the acquisition of the Pennsylvania Operations,
the Company assumed $45,000,000 of First Mortgage Bonds bearing interest between
8.375% and 9.34%. In connection with the acquisition of ProvEnergy, the Company
assumed $86,916,000 of First Mortgage Bonds bearing interest between 5.62% and
10.25%. In connection with the acquisition of Fall River Gas, the Company
assumed $19,500,000 of First Mortgage Bonds bearing interest between 7.24% and
9.44%. In connection with the acquisition of Valley Resources, the Company
assumed $6,905,000 of 7.70% Debentures.

Capital Lease The Company completed the installation of an Automated Meter
Reading (AMR) system at Missouri Gas Energy during the first quarter of fiscal
year 1999. The installation of the AMR system involved an investment of
approximately $30,000,000 which is accounted for as a capital lease obligation.
As of March 31, 2001, the capital lease obligation outstanding was $23,687,000
with a fixed rate of 5.79%. This system has significantly improved meter reading
accuracy and timeliness and provided electronic accessibility to meters in
residential customers' basements, thereby assisting in the reduction of the
number of estimated bills.

Credit Facilities On May 31, 2000, the Company restated and amended its
short-term and long-term credit facilities (together referred to as "Revolving
Credit Facilities"). The Company has available $90,000,000 under the short-term
facility, which expires May 30, 2001, and $135,000,000 under the long-term
facility, which expires on May 31, 2003. The Company has additional availability
under uncommitted line of credit facilities with various banks. Borrowings under
the Revolving Credit Facilities are available for Southern Union's working
capital, letter of credit requirements and other general corporate purposes. A
balance of $211,600,000 was outstanding under the Revolving Credit Facilities at
March 31, 2001.

Term Note On August 28, 2000 the Company entered into the Term Note to fund (i)
the cash portion of the con sideration to be paid to the Fall River Gas'
stockholders; (ii) the all cash consideration to be paid to the ProvEnergy and
Valley Resources stockholders, (iii) repayment of approximately $50,000,000 of
long- and short-term debt assumed in the mergers, and (iv) all related
acquisition costs. As of March 31, 2001, a balance of $523,000,000 was
outstanding under this Term Note. The Term Note expires August 27, 2001 but may
be extended at the Company's option through August 26, 2002 for a fee. No
additional draws can be made on the Term Note.

UTILITY REGULATION AND RATES

Missouri On November 7, 2000, Missouri Gas Energy filed a $39,384,000 request
for a rate increase with the Missouri Public Service Commission (MPSC). Statutes
require that the MPSC reach a decision in the case within an eleven-month
period.

On August 21, 1998, Missouri Gas Energy was notified by the MPSC of its decision
to grant a $13,300,000 annual increase to revenue effective on September 2,
1998, which is primarily earned volumetrically. The MPSC rate order reflected a
10.93% return on common equity. The rate order, however, disallowed certain
previously recorded deferred costs requiring a non-cash write-off of $2,221,000.
The Company recorded this charge to earnings in its fiscal year ended June 30,
1998. On December 8, 1998, the MPSC denied rehearing requests made by all
parties other than Missouri Gas Energy and granted a portion of Missouri Gas
Energy's rehearing request. On October 10, 2000, the MPSC issued its decision on
rehearing Missouri Gas Energy's request which served to reduce the $13,300,000
annual revenue increase by $70,000. The MPSC's orders are subject to judicial
review and although certain parties have argued for a reduction in Missouri Gas
Energy's authorized base revenue increase on judicial review, Missouri Gas
Energy expects such arguments to be unsuccessful.

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                                   17

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                    SOUTHERN UNION COMPANY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Rhode Island Effective October 1, 2000, the Rhode Island Public Utilities
Commission (RIPUC) approved a settle ment agreement between Providence Gas, the
Rhode Island Division of Public Utilities and Carriers, the Energy Council of
Rhode Island, and The George Wiley Center. The settlement agreement recognizes
the need for an increase in distribution system revenues of $4,500,000,
recovered through an adjustment to the throughput portion of the gas charge, and
provides for a 21-month base rate freeze. In the settlement agreement, the RIPUC
authorized system improvement programs. Additionally, higher levels of support
for low income bill payment assistance was authorized as well as the
continuation of the utility's demand side management and weatherization
assistance programs.

The settlement agreement also contains a weather mitigation clause and a
non-firm margin incentive mechanism (non-firm margin is margin earned from
interruptible customers with the ability to switch to alternative fuels). The
weather mitigation clause is designed to mitigate the impact of weather
volatility on customer billings, which will assist customers in paying bills and
stabilize the revenue stream to Providence Gas. Providence Gas will defer the
margin impact of weather that is greater than 2 percent colder-than-normal and
will recover the margin impact of weather that is greater than 2 percent
warmer-than-normal by making the corresponding adjustment to the deferred
revenue account (DRA). The non-firm margin incentive mechanism is designed to
encourage Providence Gas to promote the development of non-firm margins, which
will reduce the cost of service to all customers. Providence Gas will retain 25
percent of all non-firm margins earned in excess of $1,200,000.

Under the settlement agreement, Providence Gas may earn up to 10.7 percent but
not less than 7.0 percent using the average return on equity for the two 12
month periods of October 2000 through September 2001 and July 2001 through June
2002.

Pennsylvania On April 3, 2000, PG Energy filed an application with the
Pennsylvania Public Utility Commission (PPUC) seeking an increase in its base
rates designed to produce $17,900,000 in additional annual revenues. On December
7, 2000, the PPUC approved a settlement agreement that provides for a rate
increase designed to produce $10,800,000 of additional annual revenue. The new
rates became effective on January 1, 2001.

El Paso, Texas On October 18, 1999, Southern Union Gas filed a $1,696,000 rate
increase request for the El Paso service area with the City of El Paso. In
February 2000, the City of El Paso approved a $650,000 revenue increase, and an
improved rate design that collects a greater portion of the Company's revenue
stream from the monthly customer charge. Additionally, the City of El Paso
approved a new 30-year franchise for Southern Union Gas.

COMMITMENTS AND CONTINGENCIES

Environmental The Company is subject to federal, state and local laws and
regulations relating to the protection of the environment. These evolving laws
and regulations may require expenditures over a long period of time to con trol
environmental impacts. The Company has established procedures for the on-going
evaluation of its operations to identify potential environmental exposures and
assure compliance with regulatory policies and procedures.

The Company is investigating the possibility that the Company or predecessor
companies may have been associated with Manufactured Gas Plant (MGP) sites in
its former service territories, principally in Arizona and New Mexico, and
present service territories in Texas, Missouri and its newly acquired service
territories in Pennsylvania, Massachusetts and Rhode Island. At the present
time, the Company is aware of certain MGP sites in these areas and is
investigating those and certain other locations. While the Company's evaluation
of these Texas, Missouri, Arizona, New Mexico, Pennsylvania, Massachusetts and
Rhode Island MGP sites is in its preliminary stages, it is likely that some
compliance costs may be identified and become subject to reasonable
quantification. Within the Company's service territories certain MGP sites are
currently the subject of governmental actions. Certain of these sites are as
follows:


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                                     18

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                       SOUTHERN UNION COMPANY AND SUBSIDIARIES

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Kansas City, Missouri MGP Sites In a letter dated May 10, 1999, the Missouri
Department of Natural Resources (MDNR) sent notice of a planned Site
Inspection/Removal Site Evaluation of the Kansas City Coal Gas Former MGP site.
This site (comprised of two adjacent MGP operations previously owned by two
separate companies and hereafter referred to as Station A and Station B) is
located at East 1st Street and Campbell in Kansas City, Missouri and is owned by
Missouri Gas Energy. A 1988 investigation of the site performed by an
Environmental Protection Agency (EPA) contractor determined that further
remedial assessment was not required under the Comprehensive Environmental
Response Compensation and Liability Act of 1980 (CERCLA), as amended by the
SUPERFUND Amendments and Reauthorization Act of 1986. The MDNR has stated that
the reassessment of the Kansas City Coal Gas site is part of a statewide effort
to identify, evaluate, and prioritize the potential hazards posed by all of
Missouri's MGP sites. During July 1999, the Company sent applications to MDNR
submitting the two sites to the agency's Voluntary Cleanup Program (VCP). The
sites were accepted into the VCP on August 2, 1999 and MDNR subsequently
approved the Company's proposed work plans for the environmental assessment of
the sites. The final environment reports were sent to the state on March 6,
2000. In a letter dated June 21, 2000, MDNR responded to the Station A
environmental report submitted by the Company. In that letter, MDNR stated that
soil remediation will be necessary at the site (Station A) but that further
exploration and delineation of site contamination should be performed before
remedial methods can be determined. In response to MDNR's request, the Company
submitted a work plan for further investigation of the site to the agency on
September 18, 2000. Following MDNR's acceptance of the work plan, additional
site assessment work was performed and completed on March 26, 2001. MDNR has not
responded to the Station B environmental report submitted by the Company.

Independence, Missouri MGP Site The Company received a letter dated December 16,
1999 from MDNR notifying the Company of a Pre-Comprehensive Environmental
Response Compensation and Liability Information System (CERCLIS) Site Screening
investigation of a former MGP located at Pacific Avenue & South River Boulevard
in Independence, Missouri. The Company contacted the MDNR to inform the state
that, as this property is not owned by the Company, it cannot grant access to
the property for MDNR's investigation. MDNR proceeded to investigate the site in
cooperation with the site's current owner. In a letter dated May 17, 2000, MDNR
reported that the site is not recommended for CERCLIS entry and no further
CERCLA action is recommended. However, due to the presence of characteristic
waste, the site is eligible for the state's Registry of Confirmed Abandoned or
Uncontrollable Hazardous Waste Disposal Sites in Missouri.

Providence, Rhode Island Sites During 1995, Providence Gas began an
environmental evaluation at its primary gas distribution facility located at 642
Allens Avenue in Providence, Rhode Island. Environmental studies and a
subsequent remediation work plan were completed at an approximate cost of $4.5
million. Providence Gas also began a soil remediation project on a portion of
the site in July 1999. As of March 31, 2001, approximately $8,900,000 had been
expended on soil remediation under the remediation work plan. Based on the
results of the environmental investigation and the site information learned
during the performance of work under the remediation work plan, the Company is
now revising the remediation work plan. Although additional remediation work is
planned for the site during calendar year 2001, assessment and remediation costs
will not exceed $1,000,000 during calendar year 2001. Because of the
uncertainties associated with the revision of the remediation work plan and the
development of a remedial solution for the entire site, the Company cannot offer
any conclusions as to the total future cost of remediation of the property at
this time.

In November 1998, Providence Gas received a letter of responsibility from the
Department of Environmental Management (DEM) relating to possible contamination
on previously owned property at 170 Allens Avenue in Providence. The current
operator of the property has also received a letter of responsibility. A work
plan has been created and approved by DEM. An investigation has begun to
determine the extent of contamination, as well as the extent of the Company's
responsibility. Providence Gas entered into a cost-sharing agreement with the
current operator of the property, under which Providence Gas is responsible for
approximately twenty percent (20%) of the costs related to the investigation.
Costs of testing at this site as of March 31, 2001 were approximately $300,000.
Until the results of the investigation are known, the Company cannot offer any
conclusions as to its responsibility.

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                                   19

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                    SOUTHERN UNION COMPANY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Tiverton, Rhode Island Site Fall River Gas Company is a defendant in a civil
action seeking to recover anticipated remediation costs associated with
contamination found at property owned by the plaintiffs. This claim is based on
alleged dumping of material by Fall River Gas Company trucks at the site in the
1930s and 1940s.

Valley Resources Sites Valley Resources is a party to an action in which
Blackstone Valley Electric Company ("Blackstone") brought suit for contribution
to its expenses of cleanup of a site on Mendon Road in Attleboro, Massachusetts,
to which coal manufacturing waste was transported from a former MGP site in
Pawtucket, Rhode Island (the "Blackstone Litigation"). Blackstone Valley
Electric Company v. Stone & Webster, Inc., Stone & Webster Engineering
Corporation, Stone & Webster Management Consultants, Inc. and Valley Gas
Company, C. A. No. 94- 10178JLT, United States District Court, District of
Massachusetts. Valley Resources takes the position in that litigation that it is
indemnified for any cleanup expenses by Blackstone pursuant to a 1961 agreement
signed at the time of Valley Resources' creation. This suit was stayed in 1995
pending the issuance of rulemaking at the United States EPA (Commonwealth of
Massachusetts v. Blackstone Valley Electric Company, 67 F.3d 981 (1995)). In
January 2001, the EPA issued a Preliminary Administrative Decision on this issue
and announced that, until March 21, 2001, it is soliciting comments on the
Decision. The EPA subsequently announced that the current period would be
extended for an additional three month period. While this suit has been stayed,
Valley Resources and Blackstone (merged with Narragansett Electric Company in
May 2000) have received letters of responsibility from the Rhode Island DEM with
respect to releases from two MGP sites in Rhode Island. DEM issued letters of
responsibility to Valley Resources and Blackstone in September 1995 for the
Tidewater MGP in Pawtucket, Rhode Island, and in February 1997 for the Hamlet
Avenue MGP in Woonsocket, Rhode Island. Valley Resources entered into an
agreement with Blackstone (now Narragansett) in which Valley Resources and
Blackstone agreed to share equally the expenses for the costs associated with
the Tidewater site subject to reallocation upon final determination of the legal
issues that exist between the companies with respect to responsibility for
expenses for the Tidewater site and otherwise. No such agreement has been
reached with respect to the Hamlet site.

To the extent that potential costs associated with former MGPs are quantified,
the Company expects to provide any appropriate accruals and seek recovery for
such remediation costs through all appropriate means, including in rates charged
to customers, insurance and regulatory relief. At the time of the closing of the
acquisition of the Company's Missouri service territories, the Company entered
into an Environmental Liability Agreement that provides that Western Resources
retains financial responsibility for certain liabilities under environmental
laws that may exist or arise with respect to Missouri Gas Energy. In addition,
at the time it was acquired, Providence Gas had in place a regulatory plan that
created a mechanism for the recovery of environmental-related costs. This plan
provided for recovery of environmental investigation and remediation costs
incurred through September 30, 1997, as well as costs incurred during the
three-year term of the plan, are to be amortized over a 10-year period, at a
level authorized under the plan. A new plan, effective October 1, 2000 through
June 30, 2002, establishes an environmental fund for the recovery of evaluation,
remedial and clean-up costs arising out of the Company's MGPs and sites
associated with the operation and disposal activities from MGPs.

Although significant charges to earnings could be required prior to rate and
insurance recovery, management does not believe that environmental expenditures
for MGP sites will have a material adverse effect on the Company's financial
position, results of operations or cash flows.

The Company follows the provisions of an American Institute of Certified Public
Accountants Statement of Position, Environmental Remediation Liabilities, for
recognition, measurement, display and disclosure of environmental remediation
liabilities.

Southwest Gas Litigation On February 1, 1999, Southern Union submitted a
proposal to the Board of Directors of Southwest Gas Corporation (Southwest) to
acquire all of Southwest's outstanding common tock for $32.00 per share.
Southwest then had a pending merger agreement with ONEOK, Inc. (ONEOK) at $28.50
per share. On February 22, 1999, Southern Union and Southwest both publicly
announced Southern Union's proposal, after the

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                                    20

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                   SOUTHERN UNION COMPANY AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Southwest Board of Directors determined that Southern Union's proposal was a
Superior Proposal (as defined in the Southwest merger agreement with ONEOK). At
that time Southern Union entered into a Confidentiality and Standstill Agreement
with Southwest at Southwest's insistence. On April 25, 1999, Southwest's Board
of Directors rejected Southern Union's $32.00 per share offer and accepted an
amended offer of $30.00 per share from ONEOK. On April 27, 1999, Southern Union
increased its offer to $33.50 per share and agreed to pay interest which,
together with dividends, would provide Southwest shareholders with a 6% annual
rate of return on its $33.50 offer, commencing February 15, 2000, until closing.
Southern Union's revised proposal was rejected by Southwest's Board of
Directors. On January 21, 2000, ONEOK announced that it was withdrawing from the
Southwest merger agreement.

There are several lawsuits pending in the U. S. District Court for Arizona that
relate to activities surrounding Southern Union's efforts to acquire Southwest.
In addition, there is before the U. S. Court of Appeals for the Tenth Circuit,
an appeal by Southern Union of a preliminary injunction entered by the U. S.
District Court for the Northern District of Oklahoma. The Company anticipates
that a trial of the consolidated lawsuits in Arizona will begin in November
2001. Southern Union intends to vigorously pursue its claims against Southwest,
ONEOK, and certain individual defendants, and vigorously defend itself against
the claims by Southwest and ONEOK. With the exception of ongoing legal fees
associated with the aforementioned litigation, the Company believes that the
results of the above- noted Southwest litigation will not have a materially
adverse effect on the Company's financial condition, results of operations or
cash flows.

Regulatory In August 1998, a jury in Edinburg, Texas concluded deliberations on
the City of Edinburg's franchise fee lawsuit against PG&E Gas Transmission,
Texas Corporation (formerly Valero Energy Corporation (Valero)) and a number of
its subsidiaries, as well as former Valero subsidiary Rio Grande Valley Gas
Company (RGV) and RGV's successor company, Southern Union Company. Southern
Union purchased RGV from Valero in October 1993. The jury awarded the plaintiff
damages, against all defendants under several largely overlapping but mutually
exclusive claims, totaling approximately $13,000,000. The trial judge
subsequently reduced the award to approximately $700,000 against Southern Union
and $7,800,000 against Valero and Southern Union together. The trial court's
decision was appealed to the Thirteenth District of the Texas Court of Appeals
(Court of Appeals). In December 2000, the Court of Appeals reversed and modified
the trial court's judgment of approximately $8,500,000 and awarded the City of
Edinburg $585,000, plus pre-judgment interest of $190,000 against RGV and Valero
for breach of contract. The Court of Appeals upheld the award for attorneys'
fees of approximately $3,500,000 against Valero, RGV and Southern Union. In
April 2001, the Court of Appeals granted the release requested in Southern
Union's motion for rehearing, and reformed its earlier opinion so as to exclude
Southern Union from any remaining liability. The other parties in the case have
contested this opinion. The Company will continue to monitor its position in
this case. The Company believes that the outcome of this matter will not have a
material adverse impact on the Com pany's results of operations, financial
position or cash flows. The Company also has entered into a settlement agree
ment to settle a related class action lawsuit with a majority of the cities
served by the Company in Texas. The settle ment will not have a material adverse
impact on the Company's results of operations, financial position or cash flows.

Other Southern Union and its subsidiaries are parties to other legal proceedings
that management considers to be normal actions to which an enterprise of its
size and nature might be subject, and not to be material to the Company's
overall business or financial condition, results of operations or cash flows.



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                                    21

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                  SOUTHERN UNION COMPANY AND SUBSIDIARIES

                   MANAGEMENT'S DISCUSSION AND ANALYSIS
            OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Overview Southern Union Company's (the "Company") core business is the
distribution of natural gas as a public utility through: Southern Union Gas,
Missouri Gas Energy (MGE); Atlantic Utilities, doing business as South Florida
Natural Gas (SFNG); PG Energy, acquired on November 4, 1999; and, effective with
the September 2000 acquisi tions of Providence Energy Corporation, Valley
Resources, Inc. and Fall River Gas Company, collectively its New England
Division. In addition, subsidiaries of Southern Union support and expand natural
gas sales and capitalize on the Company's gas energy expertise. These
subsidiaries operate natural gas pipeline systems, generate electricity, market
natural gas and electricity to end-users and distribute propane and fuel oil.
Certain subsidiaries also own or hold interests in real estate and other assets,
which are primarily used in the Company's utility business.

Most of the Company's business activities are subject to regulation by federal,
state or local authorities where the Company operates. Thus, the Company's
financial condition and results of operations have been and will continue to be
dependent upon the receipt of adequate and timely adjustments in rates. In
addition, the Company's business is affected by seasonal weather impacts,
competitive factors within the energy industry and economic development and
residential growth in its service areas.

Acquisitions On September 28, 2000, Southern Union completed the acquisition of
Providence Energy Corporation (ProvEnergy) for approximately $270,000,000 in
cash plus the assumption of $90,000,000 in long-term debt. The ProvEnergy
natural gas distribution operations are Providence Gas and North Attleboro Gas,
which collectively serve approximately 176,000 natural gas customers. Providence
Gas serves natural gas customers in Providence and Newport, Rhode Island, and 23
other cities and towns in Rhode Island. North Attleboro Gas serves customers in
North Attleboro and Plainville, Massachusetts, towns adjacent to the
northeastern Rhode Island border. Sub sidiaries of the Company acquired in the
ProvEnergy merger include ProvEnergy Oil Enterprises, Inc. (ProvEnergy Oil), and
ProvEnergy Power Company, LLC. ProvEnergy Oil operates a fuel oil distribution
business through its subsidiary, ProvEnergy Fuels, Inc. (ProvEnergy Fuels).
ProvEnergy Fuels serves over 15,000 residential and com mercial customers in
Rhode Island and Massachusetts. ProvEnergy Power Company owns 50% of Capital
Center Energy Company, LLC., a joint venture formed between ProvEnergy and ERI
Services, Inc. to provide retail power.

On September 28, 2000, Southern Union also completed the acquisition of Fall
River Gas Company (Fall River Gas) for approximately 1,400,000 shares of
Southern Union common stock and approximately $27,000,000 in cash plus
assumption of $20,000,000 in long-term debt. Fall River Gas serves approximately
49,000 customers in the city of Fall River and the towns of Somerset, Swansea
and Westport, all located in southeastern Massachusetts. Also acquired in the
Fall River Gas merger was Fall River Gas Appliance Company, Inc. which rents
water heaters and conversion burners in Fall River Gas' service area.

On September 20, 2000, Southern Union completed the acquisition of Valley
Resources, Inc. (Valley Resources) for approximately $125,000,000 in cash plus
the assumption of $30,000,000 in long-term debt. Valley Resources natural gas
distribution operations are Valley Gas Company and Bristol and Warren Gas
Company, which collectively serve approximately 66,000 natural gas customers.
Valley Resources' three non-utility subsidiaries acquired in the merger rent and
sell appliances, offer service contract programs, sell liquid propane in Rhode
Island and nearby Massa chusetts, and distribute as a wholesaler franchised
lines to plumbing and heating contractors. Also acquired in the acquisition was
Valley Resources' 90% interest in Alternate Energy Corporation, which sells,
installs and designs natural gas conversion systems and facilities, is an
authorized representative of the ONSI Corporation fuel cell, holds patents for a
natural gas/diesel co-firing system and for a device to control the flow of fuel
on dual-fuel equipment.

Collectively, the operations from the above-mentioned acquisitions are referred
to as the "New England Operations." The Company plans to sell or dispose of
certain non-core businesses acquired in the New England Operations.

On November 4, 1999, the Company acquired Pennsylvania Enterprises, Inc.
(hereafter referred to as the "Pennsylvania Operations") in a transaction valued
at approximately $500,000,000, including assumption of

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                                     22

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                   SOUTHERN UNION COMPANY AND SUBSIDIARIES

                    MANAGEMENT'S DISCUSSION AND ANALYSIS
             OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



long-term debt of approximately $115,000,000. The Company issued approximately
16,700,000 shares (before adjustment for any subsequent stock dividend) of
common stock and paid approximately $36,000,000 in cash to complete the
transaction. The Pennsylvania Operations are headquartered in Wilkes-Barre,
Pennsylvania with natural gas distribution being its primary business. The
principal operating division of the Pennsylvania Operations is the PG Energy
division of the Company which serves more than 156,000 gas customers in
northeastern and central Pennsylvania. Subsidiaries of the Company included in
the Pennsylvania Operations include PG Energy Services Inc., (Energy Services);
Keystone Pipeline Services, Inc. (Keystone, a wholly-owned subsidiary of PG
Energy Services Inc.); and PEI Power Corporation. Through Energy Services the
Company markets a diversified range of energy-related products and services
under the name of PG Energy PowerPlus and supplies propane under the name of PG
Energy Propane. Keystone provides pipeline and fiber optic cable construction,
installation, mainte nance, and rehabilitation services. PEI Power Corporation
operates a cogeneration plant that generates steam and electricity for resale.
The Company plans to sell or dispose of both Keystone and the propane operations
of Energy Services; these operations are not material to the Company. The
Company has not yet sold these operations and there can be no assurance that a
sale on terms satisfactory to the Company will be completed. A letter of intent
has been entered into for certain of these operations with the sale expected to
be completed during the fourth quarter of fiscal year 2001.

The operating activities of the acquired operations are consolidated with the
Company beginning on their respective acquisition dates. Thus, the results of
operations for the three-, nine- and twelve-month periods ended March 31, 2001
are not indicative of results that would necessarily be achieved for a full year
since the majority of the Company's operating margin is earned during the winter
heating season. For these reasons, the results of operations of the Company for
the periods subsequent to the acquisitions are not comparable to those periods
prior to the acquisitions nor are the fiscal 2001 results of operations
comparable with prior periods.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2001 and 2000

The Company recorded net earnings available for common stock of $40,806,000 for
the three-month period ended March 31, 2001 compared with net earnings of
$19,515,000 for the same period in 2000. Earnings per diluted share were $.77 in
2001, compared with $.38 in 2000. Weighted average diluted shares outstanding
increased 3% in 2001 due to the issuance of 1,370,629 shares of the Company's
common stock on September 28, 2000 in connection with the acquisition of Fall
River Gas.

Operating revenues were $914,653,000 for the three-month period ended March 31,
2001, compared with $344,789,000 in 2000. Gas purchase and other energy costs
for the three-month period ended March 31, 2001 were $685,404,000, compared with
$217,793,000 in 2000. The Company's operating revenues are affected by the level
of sales volumes and by the pass-through of increases or decreases in the
Company's gas purchase costs through its purchased gas adjustment clauses.
Additionally, revenues are affected by increases or decreases in gross receipts
taxes (revenue-related taxes) which are levied on sales revenue as collected
from customers and remitted to the various taxing authorities. The increase in
both operating revenues and gas purchase costs between periods was primarily due
to a 46% increase in gas sales volume to 77,671 MMcf in 2001 from 53,101 MMcf in
2000 and by a 123% increase in the average cost of gas from $3.66 per MMcf in
2000 to $8.17 per Mcf in 2001. Changes in the average cost of gas resulted from
seasonal impacts on demands for natural gas. The New England Operations
contributed $210,500,000 to the overall increase in operating revenues,
$135,598,000 in gas purchase and other energy costs and 15,756 MMcf of the
increase in gas sales volume. The remaining increases in both operating revenues
and gas purchase and other energy costs was primarily due to the previously
mentioned increase in the average cost of gas as well as an 8,814 MMcf increase
in sales volume in the Texas, Missouri and Pennsylvania

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                                    23

<PAGE>



                    SOUTHERN UNION COMPANY AND SUBSIDIARIES

                     MANAGEMENT'S DISCUSSION AND ANALYSIS
               OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



service territories as a result of the colder-than-normal weather in these
territories in 2001 as compared to the unusually mild temperatures in 2000.

Weather in MGE's service territories was 100% of a 30-year measure for the
three-month period ended March 31, 2001, compared with 79% in 2000. Southern
Union Gas service territories experienced weather which was 102% of a 30-year
measure in 2001, compared with 62% in 2000. About half of the customers served
by Southern Union Gas are weather normalized. Additionally, with the February
2000 revenue increase in El Paso, Texas, the new rate design collects a greater
portion of the revenue stream from the monthly customer charge instead of being
earned volumetrically. Weather for the PG Energy service territories was 98% of
a 30-year measure for the three-month period ended March 31, 2001, compared with
92% in 2000. Weather in the New England division service territories was 100% of
a 30-year measure for the three-month period ended March 31, 2001.

Net operating margin (operating margin less revenue-related taxes) increased
$82,784,000 for the three-month period ended March 31, 2001, compared with the
same period in 2000. Growth in net operating margin is primarily due to the
colder-than-normal weather, previously discussed, and the acquisition of the New
England Operations which generated $70,208,000 in net operating margin.

Operating expenses, which include operating, maintenance and general expenses,
depreciation and amortization, and taxes other than on income and revenues, were
$102,861,000 for the three-month period ended March 31, 2001, an increase of
$42,961,000, compared with $59,900,000 in 2000. An increase of $36,109,000 was
the result of the acquisition of the New England Operations. Also impacting
operating expenses was an increase in bad debt expense in the Texas, Missouri
and Pennsylvania service territories of $9,326,000 due to an increase in
customer receivables as a result of higher gas prices as previously discussed.
This was partially offset by a $2,216,000 reversal of non- cash compensation
expense associated with shares of common stock held in a trust for one of the
Company's benefit plans, resulting from a $5.50 decrease in the Company's common
stock price during the period from January 1, 2001 to March 22, 2001. The
Company amended this plan effective March 22, 2001 to eliminate future expense,
or income volatility, associated with the accounting treatment for such benefit
plan.

Interest expense was $29,163,000 for the three-month period ended March 31,
2001, compared with $14,940,000 in 2000. Interest expense increased primarily
due to a $535,000,000 bank note (the Term Note) entered into by the Company on
August 28, 2000 for the acquisition of the New England Operations. The Company
entered into the Term Note to (i) fund the cash consideration paid to
stockholders of Fall River Gas, ProvEnergy and Valley Resources, (ii) refinance
and repay long- and short-term debt assumed in the New England Operations, and
(iii) acquisition costs of the New England Operations. The Company also assumed
$113,321,000 in long-term debt of the New England Operations which was not
refinanced or extinguished with the Term Note. As a result of the previously
discussed high cost of gas, the Company incurred additional interest expense of
$2,547,000 under its short-term credit facilities during the three-month period
ended March 31, 2001 compared with the same period in 2000. Southern Union is
required to make payments to natural gas suppliers in advance of the receipt of
cash payments from the Company's customers. See "Debt and Capital Lease" in the
Notes to the Consolidated Financial Statements included herein.

Other income for the three-month period ended March 31, 2001 was $14,364,000
compared with other expense of $1,034,000 in 2000. Other income for the
three-month period ended March 31, 2001, includes realized gains on the sale of
investment securities of $12,494,000, non-cash trading gains of $3,360,000 and
interest and dividend income of $1,680,000. This was partially offset by
$3,568,000 of legal costs associated with ongoing litigation associated with the
unsuccessful acquisition of Southwest Gas Corporation (Southwest). Other expense
for the three-month period ended March 31, 2000 primarily consisted of
$1,400,000 of legal costs associated with the aforementioned ongoing litigation
which was partially offset by $663,000 in net rental income from Lavaca Realty
Company ("Lavaca Realty").

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                                      24

<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                       MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



The effective federal and state income tax rate is 46% and 43% for the three
months ended March 31, 2001 and 2000, respectively. The increase in the
effective federal and state income tax rate is a result of non-tax deductible
amortization of additional purchase cost recorded at the acquisition of the New
England Operations.

Nine Months Ended March 31, 2001 and 2000

The Company recorded net earnings available for common stock of $46,150,000 for
the nine-month period ended March 31, 2001, compared with net earnings of
$20,547,000 for the same period in 2000. Net earnings per diluted share were
$.88 in 2001 compared with $.47 in 2000. Weighted average diluted shares
outstanding increased 20% in 2001 due to the issuance of the Company's common
stock in connection with the acquisition of Fall River Gas, previously
discussed, and the issuance of 16,713,731 shares (before adjustment for any
subsequent stock dividend) of the Company's common stock on November 4, 1999 in
connection with the acquisition of the Pennsylvania Operations.

Operating revenues were $1,664,461,000 for the nine-month period ended March 31,
2001, compared with $669,170,000 in 2000. Gas purchase and other energy costs
for the nine-month period ended March 31, 2001 were $1,203,862,000, compared
with $402,182,000 in 2000. The increase in both operating revenues and gas
purchase costs between periods was primarily due to a 53% increase in gas sales
volume to 154,432 MMcf in 2001 from 101,225 MMcf in 2000 and by a 97% increase
in the average cost of gas from $3.59 per Mcf in 2000 to $7.06 per Mcf in 2001
due to increases in average gas prices. The New England Operations contributed
$351,679,000 to the overall increase in operating revenues, $224,708,000 in gas
purchase and other energy costs and 26,655 MMcf of the increase in gas sales
volume. The Pennsylvania Operations generated a net increase of $136,886,000 in
operating revenues, $119,029,000 in gas purchase and other energy costs, and
5,501 MMcf of the increase in gas sales volume. The remaining increase in
operating revenues, gas purchase and other energy costs, and gas sales volume
resulted principally from the colder-than-normal weather in the Texas and
Missouri service territories in 2001 as compared to the unusually mild
temperatures in 2000.

MGE's service territories experienced weather which was 110% of a 30-year
measure for the nine-month period ended March 31, 2001 compared with 79% in
2000. Weather for Southern Union Gas service territories was 113% of a 30-year
measure in 2001, compared with 72% in 2000. About half of the customers served
by Southern Union Gas are weather normalized. Additionally, with the February
2000 revenue increase in El Paso, Texas, the new rate design collects a greater
portion of the revenue stream from the monthly customer charge instead of being
earned volumetrically. Weather in the PG Energy service territories was 107% of
a 30-year measure for the nine-month period ended March 31, 2001, compared with
91% of a 30-year measure for the five-month period ended March 31, 2000. Weather
in the New England division service territories was 107% of a 30-year measure
for the six-month period ended March 31, 2001.

Net operating margin increased $160,430,000 for the nine-month period ended
March 31, 2001 compared with the same period in 2000. Growth in net operating
margin is primarily due to the acquisition of the New England Opera tions which
generated $118,921,000 in net operating margin and the Pennsylvania Operations
which contributed a net increase of $19,037,000. The remaining increase is due
to the colder-than-normal weather in the Missouri and Texas service territories,
previously discussed.

Operating expenses were $254,544,000 for the nine-month period ended March 31,
2001, an increase of $102,579,000, compared with $151,965,000 in 2000. Increases
of $69,227,000 and $16,850,000 were the result of the acquisitions of the New
England Operations and the Pennsylvania Operations, respectively. Also
contributing to the increase was an increase in bad debt expense in the Texas
and Missouri service territories of $9,929,000 due to an increase in customer
receivables as a result of higher gas prices, previously discussed. Also
impacting

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                                    25

<PAGE>



                   SOUTHERN UNION COMPANY AND SUBSIDIARIES

                    MANAGEMENT'S DISCUSSION AND ANALYSIS
             OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



operating expenses for the nine-month period ended March 31, 2001 were increases
in employee payroll and benefit costs due to the colder-than-normal weather.

Interest expense was $75,772,000 for the nine-month period ended March 31, 2001,
compared with $36,603,000 in 2000. Interest expense increased primarily due to
the Term Note entered into by the Company for the acquisition of the New England
Operations, previously discussed, and the issuance of $300,000,000 of 8.25%
Senior Notes on November 3, 1999 (8.25% Senior Notes) for the acquisition of the
Pennsylvania Operations. The Company issued 8.25% Senior Notes to fund the
acquisition of Pennsylvania Enterprises, Inc. and to extinguish $136,000,000 in
existing debt of the Pennsylvania Operations. The Company also assumed long-term
debt of the New England Operations, previously discussed, and $45,000,000 in
long-term debt of the Pennsylvania Operations which was not refinanced or
extinguished with the Term Note or the 8.25% Senior Notes. As a result of the
previously discussed high cost of gas, the Company incurred additional interest
expense of $4,617,000 under its short-term credit facilities during the
nine-month period ended March 31, 2001 compared with the same period in 2000.
See "Debt and Capital Lease" in the Notes to the Financial Statements included
herein.

Other income for the nine-month period ended March 31, 2001 was $23,761,000,
compared with other expense of $5,527,000 in 2000. Other income for the
nine-month period ended March 31, 2001 includes realized gains on the sale of
investment securities of $21,363,000, a $13,532,000 gain on the sale of non-core
real estate, and interest and dividend income of $3,385,000. This was partially
offset by $8,466,000 of legal costs associated with ongoing litigation from the
unsuccessful acquisition of Southwest and $5,684,000 of non-cash trading losses.
Other expense for the nine-month period ended March 31, 2000 primarily consisted
of $6,664,000 of legal costs associated with the aforementioned ongoing
litigation which was partially offset by $1,327,000 in rental income from Lavaca
Realty.

The Company's consolidated federal and state effective income tax rate was 46%
and 43% for the nine months ended March 31, 2001 and 2000, respectively. The
increase in the effective federal and state income tax rate is a result of
non-tax deductible amortization of additional purchase cost associated with the
acquisition of the New England Operations and Pennsylvania Operations.

The Company adopted the Statement of Financial Accounting Standards Board (FASB)
Accounting for Derivative Instruments and Hedging Activities on July 1, 2000. In
accordance with the transition provisions of the Statement, the Company recorded
a net-of-tax cumulative-effect-type gain of $602,000 in earnings to recognize
the fair value of the derivative instruments that do not qualify for hedge
accounting treatment under the Statement.

Twelve Months Ended March 31, 2001 and 2000

The Company recorded net earnings available for common stock of $35,448,000 for
the twelve-month period ended March 31, 2001, compared with net earnings of
$15,043,000 in 2000. Earnings per diluted share were $.68 in 2001 compared with
earnings per diluted share of $.36 in 2000. Weighted average diluted shares
outstanding increased 25% due to the issuance of the Company's common stock in
connection with the acquisition of Fall River Gas and the Pennsylvania
Operations, previously discussed.

Operating revenues were $1,826,995,000 for the twelve-month period ended
March 31, 2001, compared with $770,858,000 in 2000. Gas purchase and other
energy costs for the twelve-month period ended March 31, 2001 were
$1,299,378,000, compared with $452,113,000 in 2000. The increase in both
operating revenues and gas purchase costs between periods was primarily due to a
47% increase in gas sales volume to 172,986 MMcf in 2001 from 117,777 MMcf in
2000 and by a 93% increase in the average cost of gas from $3.50 per Mcf in 2000
to $6.75 per Mcf in 2001 due to increases in average gas prices. The New England
Operations contributed $351,679,000 to the overall increase in operating
revenues, $224,708,000 in gas purchase and other energy costs and 26,655 MMcf of
the increase in gas sales volume. The Pennsylvania Operations generated a net
increase of $182,376,000 in

--------------------------------------------------------------------------------

                                  26

<PAGE>



                    SOUTHERN UNION COMPANY AND SUBSIDIARIES

                     MANAGEMENT'S DISCUSSION AND ANALYSIS
               OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



operating revenues, $148,662,000 in gas purchase and other energy costs and
8,622 MMcf of the increase in gas sales volume. The remaining increases in
operating revenues, gas purchase and other energy costs, and gas sales volume
resulted principally from the colder weather in the Texas and Missouri Service
territories in 2001 as compared to 2000.

MGE's service territories experienced weather which was 108% of the 30-year
measure for the twelve-month period ended March 31, 2001 compared with 80% in
2000. Weather for Southern Union Gas service territories was 111% of a 30-year
measure compared with 72% in 2000. About half of the customers served by
Southern Union Gas are weather normalized. Weather in the PG Energy service
territories was 106% of a 30-year measure for the twelve- month period ended
March 31, 2001.

Net operating margin increased $175,076,000 for the twelve-month period ended
March 31, 2001, compared with the same period in 2000. Growth in net operating
margin is primarily due to the acquisition of the New England Operations which
generated $118,921,000 and to the Pennsylvania Operations which contributed a
net increase of $34,345,000. The remaining increase is due to the colder weather
in the Missouri and Texas service territories, previously discussed.

Operating expenses were $311,575,000 for the twelve-month period ended March 31,
2001, an increase of $117,560,000, compared with $194,015,000 in 2000. Increases
of $69,227,000 and $32,568,000 were the result of the acquisitions of the New
England Operations and the Pennsylvania Operations, respectively. An increase in
bad debt expense in the Texas and Missouri service territories of $10,181,000
resulted from an increase in customer receivables as a result of higher gas
prices, previously discussed. Also impacting operating expenses for the twelve-
month period ended March 31, 2001 were increases in employee payroll and benefit
costs due to the colder-than- normal weather and inventory write-downs
associated with a propane operation.

Interest expense was $90,661,000 for the twelve-month period ended March 31,
2001, compared with $45,759,000 in 2000. Interest expense increased primarily
due to the Term Note entered into by the Company for the acquisition of the New
England Operations, the 8.25% Senior Notes issued by the Company for the
acquisition of the Pennsylvania Operations and the assumption of debt by the
Company from the New England Operations and Pennsylvania Operations, all
previously discussed. As a result of the previously discussed high cost of gas,
the Company incurred additional interest expense of $4,558,000 under its
short-term credit facilities during the twelve- month period ended March 31,
2001 compared with the same period in 2000. See "Debt and Capital Lease" in the
Notes to the Consolidated Financial Statements included herein.

Other income for the twelve-month period ended March 31, 2001 was $19,580,000
compared with other expense of $7,651,000 in 2000. Other income for the
twelve-month period ended March 31, 2001 includes realized gains on the sale of
investment securities of $21,363,000, a $13,532,000 gain on the sale of non-core
real estate, and $5,002,000 of interest and dividend income. This was partially
offset by $12,165,000 of legal costs associated with ongoing litigation from the
unsuccessful acquisition of Southwest and $7,920,000 of non-cash trading losses.
Other expense for the twelve-month period ended March 31, 2000 primarily
consisted of $10,503,000 of costs associated with unsuccessful acquisition
activities and related litigation which was partially offset by $1,841,000 in
net rental income from Lavaca Realty.

The Company's consolidated federal and state effective income tax rate was 48%
and 45% for the twelve-month period ended March 31, 2001 and 2000, respectively.
The increase in the effective federal and state income tax rate is a result of
non-tax deductible amortization of additional purchase cost associated with the
acquisition of the New England Operations and Pennsylvania Operations.



--------------------------------------------------------------------------------

                                   27

<PAGE>



                  SOUTHERN UNION COMPANY AND SUBSIDIARIES

                    MANAGEMENT'S DISCUSSION AND ANALYSIS
             OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



The following table sets forth certain information regarding the Company's gas
utility operations for the three- and twelve-month periods ended March 31, 2001
and 2000:

                                      Three Months           Twelve Months
                                    Ended March 31,         Ended March 31,
                                   2001        2000         2001        2000
                                ----------  ----------   ----------  ----------
Average number of gas
  sales customers served:
    Residential................  1,341,714   1,062,100    1,195,591     965,954
    Commercial.................    132,319     107,699      117,247      95,818
    Industrial and irrigation..      4,372         764        2,553         651
    Pipeline and marketing.....        356         225          331         232
    Public authorities and
      other....................      3,177       3,195        3,157       2,992
                                ----------  ----------   ----------  ----------
        Total average
          customers served.....  1,481,938   1,173,983    1,318,879   1,065,647
                                ==========  ==========   ==========  ==========

Gas sales in millions of
  cubic feet (MMcf):
    Residential................     56,833      36,566      102,539      67,166
    Commercial.................     22,191      14,468       42,035      28,923
    Industrial and irrigation..      1,871         504        4,195       1,522
    Pipeline and marketing.....      5,113       5,542       16,712      17,253
    Public authorities and
      other....................      1,450       1,193        3,119       2,548
                                ----------  ----------   ----------  ----------
        Gas sales billed.......     87,458      58,273      168,600     117,412
    Net change in unbilled
      gas sales................     (9,787)     (5,172)       4,386         365
                                ----------  ----------   ----------  ----------
        Total gas sales........     77,671      53,101      172,986     117,777
                                ==========  ==========   ==========  ==========

Gas sales revenues (thousands
  of dollars):
    Residential................ $  596,129  $  225,712   $1,009,451  $  450,861
    Commercial.................    224,916      84,356      378,704     167,577
    Industrial and irrigation..     17,562       2,814       34,045       7,923
    Pipeline and marketing.....     29,126      14,119       73,963      43,664
    Public authorities and
      other....................     13,937       5,457       25,092      11,428
                                ----------  ----------   ----------  ----------
        Gas sales revenues
          billed...............    881,670     332,458    1,521,255     681,453
    Net change in unbilled gas
      sales revenues...........    (47,269)    (28,811)      76,772       3,660
                                ----------  ----------   ----------  ----------
        Total gas sales
          revenues............. $  834,401  $  303,647   $1,598,027  $  685,113
                                ==========  ==========   ==========  ==========

Gas sales margin (thousands
  of dollars).................. $  166,236  $  95,223    $  363,136  $  238,484
                                ==========  =========    ==========  ==========

Gas sales revenue per thousand
  cubic feet (Mcf) billed:
    Residential................ $    10.49  $    6.17    $     9.85  $     6.71
    Commercial.................      10.14       5.83          9.01        5.79
    Industrial and irrigation..       9.39       5.59          8.12        5.21
    Pipeline and marketing.....       5.70       2.55          4.43        2.53
    Public authorities and
      other....................       9.61       4.57          8.04        4.49

Weather:
  Degree days:
    Southern Union Gas service
      territories..............      1,259        777         2,372       1,550
    Missouri Gas Energy service
      territories..............      2,809      2,211         5,643       4,200
    PG Energy service
      territories..............      3,120      2,929         6,651       4,524
    New England service
      territories..............      2,980       --           5,174        --
  Percent of normal, based on
    30-year measure:
      Southern Union Gas
        service territories....       102%        62%          111%         72%
      Missouri Gas Energy
        service territories....       100%        79%          108%         80%
      PG Energy service
        territories............        98%        92%          106%         91%
      New England service
        territories............       100%       --            107%        --

Gas transported in millions
  of cubic feet (MMcf).........     26,822     25,738        91,264      70,093
Gas transportation revenues
  (thousands of dollars)....... $   17,606  $  12,174    $   47,624  $   29,405

-------------------------

The above information does not include the Company's 43% equity ownership in a
natural gas distribution company serving 25,000 customers in Piedras Negras,
Mexico. Information for Fall River Gas and ProvEnergy, acquired September 28,
2000, and Valley Resources, acquired September 20, 2000, is included since
October 1, 2000. The 30-year measure is used above for consistent external
reporting purposes. Measures of normal weather used by the Company's regulatory
authorities to set rates vary by jurisdiction. Periods used to measure normal
weather for regulatory purposes range from 10 years to 30 years.

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                                  28

<PAGE>



                    SOUTHERN UNION COMPANY AND SUBSIDIARIES

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
               OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



FINANCIAL CONDITION

The Company's gas utility operations are seasonal in nature with a significant
percentage of the annual revenues and earnings occurring in the traditional
heating-load months. This seasonality results in a high level of cash flow needs
immediately preceding the peak winter heating season months, resulting from the
required payments to natural gas suppliers in advance of the receipt of cash
payments from the Company's customers. The Company has historically used
internally generated funds and its revolving loan and credit facilities to
provide funding for its seasonal working capital, continuing construction and
maintenance programs and operational requirements.

On May 31, 2000, the Company restated and amended its short-term and long-term
credit facilities (together referred to as "Revolving Credit Facilities"). The
Company has available $90,000,000 under the short-term facility, which expires
May 30, 2001, and $135,000,000 under the long-term facility, which expires on
May 31, 2003. The Company has additional availability under uncommitted line of
credit facilities with various banks. Borrowings under the Revolving Credit
Facilities are available for Southern Union's working capital, letter of credit
requirements and other general corporate purposes. A balance of $211,600,000 was
outstanding under the Revolving Credit Facilities at March 31, 2001.

On August 28, 2000 the Company entered into the Term Note to fund (i) the cash
portion of the consideration to be paid to the Fall River Gas' stockholders;
(ii) the all cash consideration to be paid to the ProvEnergy and Valley
Resources stockholders, (iii) repayment of approximately $50,000,000 of long-
and short-term debt assumed in the New England mergers, and (iv) related
acquisition costs. As of March 31, 2001, a balance of $523,000,000 was
outstanding on this Term Note. The Term Note expires August 27, 2001 but may be
extended at the Company's option through August 26, 2002 for a 12.5 basis point
fee. No additional draws can be made on the Term Note.

Concurrent with the closing of the Pennsylvania Enterprises, Inc. merger on
November 4, 1999, the Company issued $300,000,000 of 8.25% Senior Notes due 2029
which were used to: (i) fund the cash portion of the consideration to be paid to
the Pennsylvania Enterprises, Inc. shareholders; (ii) refinance and repay
certain debt of Pennsylvania Enterprises, Inc., and (iii) repay outstanding
borrowings under the Company's then existing various credit facilities. These
senior notes are senior unsecured obligations and rank equally in right of
payment with each other and with the Company's other unsecured and
unsubordinated obligations, including the 7.60% Senior Notes due 2024.

The principal sources of funds during the three-month period ended March 31,
2001 were $36,600,000 borrowed under the Company's Revolving Credit Facilities
and proceeds from the sale of investment securities of $15,405,000. The
principal uses of funds during this period included $25,469,000 for on-going
property, plant and equipment additions; $6,898,000 for the retirement of
long-term debt; as well as seasonal working capital needs of the Company.

The principal sources of funds during the nine-month period ended March 31, 2001
were $535,000,000 borrowed under the Term Note, $211,597,000 borrowed under the
Company's Revolving Credit Facilities, proceeds from the sale of investment
securities of $26,777,000 and proceeds from the sale of real estate of
$20,638,000. This provided funds of $406,949,000 for acquisition and related
expenses of the New England Operations; $114,171,000 for the retirement of
merger debt assumed from the New England Operations; $87,172,000 for on-going
property, plant and equipment additions; as well as seasonal working capital
needs of the Company.

The effective interest rate under the Company's current debt structure is 7.8%
(including interest and the amortization of debt issuance costs and redemption
premiums on refinanced debt).

The Company retains its borrowing availability under its Revolving Credit
Facilities, as discussed above. Borrowings under these credit facilities will
continue to be used, as needed, to provide funding for the seasonal working
capital needs of the Company. Internally-generated funds from operations will be
used principally for the Company's

--------------------------------------------------------------------------------

                                   29

<PAGE>



                    SOUTHERN UNION COMPANY AND SUBSIDIARIES

                     MANAGEMENT'S DISCUSSION AND ANALYSIS
              OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



ongoing construction and maintenance programs and operational needs and may also
be used periodically to reduce outstanding debt.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There are no material changes in market risks faced by the Company from those
reported in the Company's Annual Report on Form 10-K/A for the year ended
June 30, 2000.

The information contained in Item 3 updates, and should be read in conjunction
with, information set forth in Part II, Item 7 in the Company's Annual Report on
Form 10-K/A for the year ended June 30, 2000, in addition to the interim
consolidated financial statements, accompanying notes, and Management's
Discussion and Analysis of Financial Condition and Results of Operations
presented in Items 1 and 2 of this Quarterly Report on Form 10-Q.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this Form 10-Q contain forward-looking
statements that are based on current expectations, estimates and pro jections
about the industry in which the Company operates, management's beliefs and
assumptions made by man agement. Words such as "expects," "anticipates,"
"intends," "plans," "believes," "seeks," "estimates," variations of such words
and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and
involve certain risks, uncertainties and assumptions, which are difficult to
predict and many of which are outside the Company's control. Therefore, actual
outcomes and results may differ materially from what is expressed or forecasted
in such forward-looking statements. The Company undertakes no obligation to
update publicly any forward-looking statements, whether as a result of new
information, future events or otherwise. Readers are cautioned not to put undue
reliance on such forward-looking statements. Stockholders may review the
Company's reports filed in the future with the Securities and Exchange
Commission for more current descriptions of developments that could cause actual
results to differ materially from such forward-looking statements.

Factors that could cause or contribute to actual results differing materially
from such forward-looking statements include the following: cost of gas;
availability of cash flow; gas sales volumes; weather conditions in the
Company's service territories; the achievement of operating efficiencies and the
purchases and implementation of new technologies for attaining such
efficiencies; impact of relations with labor unions of bargaining-unit
employees; the receipt of timely and adequate rate relief; the outcome of
pending and future litigation; governmental regulations and proceedings
affecting or involving the Company; and the nature and impact of any
extraordinary transactions such as any acquisition or divestiture of a business
unit or any assets. These are representative of the factors that could affect
the outcome of the forward-looking statements. In addition, such statements
could be affected by general industry and market conditions, and general
economic conditions, including interest rate fluctuations, federal, state and
local laws and regulations affecting the retail gas industry or the energy
industry generally, and other factors.

OTHER

On May 12, 2001 Peter H. Kelley resigned from all of his current positions as an
officer and director of Southern Union Company due to health reasons.

The Board of Directors of Southern Union Company elected Thomas F. Karam as its
new president and chief operating officer.  Mr. Karam is currently the executive
vice president of corporate development and president and chief executive
officer of PG Energy, Southern Union Company's Pennsylvania division.  Mr. Karam
served as president and chief executive officer of Pennsylvania Enterprises,
Inc. prior to its acquisition by Southern Union Company in 1999.


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                                    30

<PAGE>



                  SOUTHERN UNION COMPANY AND SUBSIDIARIES



Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.




                                            SOUTHERN UNION COMPANY
                                ------------------------------------------------
                                                 (Registrant)






Date    May 15, 2001            By  RONALD J. ENDRES
     ------------------             --------------------------------------------
                                    Ronald J. Endres
                                    Executive Vice President and Chief Financial
                                      Officer




Date    May 15, 2001            By  DAVID J. KVAPIL
     ------------------             --------------------------------------------
                                    David J. Kvapil
                                    Senior Vice President and Corporate
                                      Controller
                                    (Principal Accounting Officer)


--------------------------------------------------------------------------------


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